The Law of Unintended Consequences

Are EPA rules the reason the coal industry is declining? Or is natural gas and other market forces the cause? The very short answer is YES!

EPA’s new clean air rules are likely to become a course in the Law of Unintended Consequences. Although for this Administration and EPA, the unintended consequences will be the intended outcome. There is no subtlety to the Administration’s hostility to fossil energy. EPA has been carrying out the President’s objective with zest and vigor.

What this rule really says is that EPA does not trust market forces. If it did, it would not have issued it and instead would have explored incentives to speed the transition from coal to gas in existing power plants. The growth in energy consumption is in the electricity sector as the composition of our economy changes and as consumers make greater use of information technologies–computers and smart phones. To meet this growing demand, the nation has to make major investments in new generation capacity and reliability. EPA’s regulation of the electric power sector puts those investments at risk.

EPA tried to make the case that its regulation exempted existing coal fired plants and therefore did not impose a cost on society. What EPA didn’t say was that the regulations that are being imposed on coal fired utilities–e.g. new source review for making modifications, utilty MACT, etc.–are a death knell. One utility, AEP, stated that it would close five coal fired power plants because of the cumulative cost of complying with EPA regulations–$6-$8 billion and increase electricity prices by 10%-35%.

Recent advances in technology and the abundance of natural gas that it has made possible began a market driven shift away from coal for new power generating investments. That is good news for consumers and the environment in that natural gas is a cleaner burning source of energy. But the bright future for gas is predicated on a rational regulatory environment and low costs, neither of which can be predicted with the certainty that EPA implies in its rule. If EPA decides to replace state regulations on fracking and horizontal drilling with a national regulation, it is a sure bet that the cost of producing natural gas will go up. It is also a virtual certainty that the affection environmentalists had for natural gas a few years ago will be replaced with a campaign for heavy handed regulation that will be a serious threat to a bright energy future.

Environmental zealots, not real environmentalists, are hostile to abundant, low cost energy, preferring alternatives that exist in theory but not in the real world where competitive markets mean something.

EPA’s regulation is predicated on the mistaken notion that it must drive CO2 emissions as low as possible without regard to cost or science to prevent dangerous global warming or the preferred term climate change. This is a case, paraphrasing Mark Twain, of the problem not being what EPA doesn’t know but all the things it knows that just aren’t so. It and the climate orthodoxy true believers can repeat over and over that fossil energy emissions are causing dangerous climate change but the facts just aren’t there. Since the El Nino in 1998, global temperatures have not increased. In the meantime, new research on the pacific decadal oscillation, climate sensitivity, and solar impacts have provided undermined the conventional wisdom that human activities are creating a climate catastrophe.

While the Obama Administration moves to regulate coal out of business, the rest of the world is not. Coal exports are climbing and will continue to do so. As developing nations grow economically, CO2 emissions will continue to grow and the atmospheric affect of EPA regulations will not be noticeable.

The economic well being of our nation now and in coming years badly needs policies that recognize the factors that produce growth, those that constrain it, and those, like a growing deficit and debt, that put the economy in “harms way.” Those policies are in short supply.

 

Originally published at http://energy.nationaljournal.com/2012/04/whats-really-causing-coals-dec.php#2192951.

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