EPA Rules on Carbon Dioxide Emissions on the Horizon
Scientists have recently stepped-up warnings about our changing global climate and how its affect on weather patterns will leave some areas in catastrophic draught conditions and others in danger of persistent floods. Although some of these changes can be attributable to natural cycles of the earth warming and cooling as it has done over the ages, the majority of the scientific community believes man-made sources of greenhouse gasses are contributing greatly to a general warming condition today.
The national debate over climate change -- its causes, it’s relative importance amongst the list of economic and social issues at hand, and what, if anything, to do about it has experienced its own ebbs and flows over the past decade. After Congress failed to pass a cap-and-trade program in 2010, political attention shifted to the 2012 election and other economic issues as the economy continued to struggle toward recovery from the Great Recession. The issue of climate change was pushed to the political back burner.
Then, ravaging effects of Super Storm Sandy in 2012 and the extreme winter weather hitting the South and Midwest portions of the U.S. this past winter have put climate change back in the national spotlight. And, with only 2 years remaining in office, the Obama administration needs to show action on one of its cornerstone issues – dealing with climate change.
So, the administration is poised to propose new rules on June 2nd to further cut carbon dioxide emissions from coal-fired power plants by encouraging state and regional cap-and-trade programs and credits for energy production from renewable energy sources such as wind and solar. The goal is to reduce emissions of carbon dioxide from these sources by up to 20 percent over the next six years. Many capitol observers view the proposed rules as a “back-door” effort by the administration to push a cap-and-trade program that Congress failed to act on previously. Under EPA’s proposed regulations, it will be up to each state to implement programs to meet the emissions goals.
Unveiling the proposed climate change rules is likely to be met with strong reaction on several fronts, including Congressional Republicans, the utility industry, the coal industry, and consumer groups. The administration’s goal is to finalize the rules by June 2015, and for states to submit implementation plans the following year. But, there is already talk of possible delays to allow more time for public input in the rules process as well as the potential for challenges and lawsuits, which could slow or halt implementation.
In 2009, AIC issued a report prepared for it by economists from Arizona State University to evaluate the economic tradeoffs should a cap-and-trade program be implemented in Arizona (LINK). The study looked at several scenarios at which carbon dioxide emissions would be priced through a cap-and-trade market auction at $30, $60 and $100 per ton and the resulting effects on the State’s economy. The study led to four key findings:
1. The imposition of an emission allowance trading program would have significant net negative impacts on the Arizona economy;
2. The size of the negative impacts is directly related to the price of the allowance
3. The most energy-intensive industries in Arizona would experience the greatest negative impact; and
4. The higher percentage of proceeds recycled back into the Arizona economy, the smaller the negative effects, but the negative impacts remain
The study calculated the negative impacts for gross state product, employment, personal income, population, household income and increased electricity and gasoline prices. You can view the numbers HERE.
The study also concluded that a cap-and-trade program in Arizona would have three primary direct effects:
1. Production costs of the utilities and fuel distributors would increase by the cost imposed for emitting carbon dioxide;
2. The increased cost of supplying electricity and fuels would result in significant price increases to industrial and residential consumers;
3. The proceeds from the sale of emission permits if distributed and recycled through the economy would mitigate a portion of the negative economic effects.
My point of this post is not to disparage the Administration’s efforts to reduce greenhouse gas emissions. In fact, efforts to reduce GHG pollution and help lower the greenhouse effect contributing to climate change could be beneficial. Arizona’s power companies are already diversifying resource portfolios by adding renewable sources and reducing reliance on coal-fired generation (I wrote about these efforts HERE).
And, some utility companies believe cap-and-trade programs afford them the greatest flexibility in meeting emission targets. But, there are clearly economic tradeoffs related to controlling such emissions. Increased prices for electricity and gasoline are perhaps the most prominent tradeoffs. As the proposed rules are vetted through the rulemaking process, it will be important that potential effects on our national and state economies also be considered.
And, as is the case with all regulations -- details matter.