EPA and Administration Again Out of Control

The administration and the EPA are in the process of promulgating two job killing bills that will result in much higher electricity costs in our nation, drive existing manufacturing jobs overseas, and create disincentives for foreign entities to invest in manufacturing in this country.

The first is the Mercury & Air Toxics Standards (known also as the Utility Maximum Achievable Control Technology or MACT rule), and the Cross State Air Pollution Rule, CSAPR.  Both stem from the 1990 Clean Air Act amendments.

Legislatures in Washington, including the democratic controlled house and Senate previously tried to issue similar rules, however, these were thrown out by the courts during the Bush administration.  This left both rewrites to the Obama administration and his EPA and they are pushing these onerous regulations forward.

The rules of the CSAPR ratchets down the permitted sulfur and nitrogen oxide emissions in 27 upwind states, to limit harm to air in downwind states.  Some 45 plaintiffs—mainly upwind state governments and power companies—allege irreparable harm if the rule takes effect when proposed January 1, 2012.  A recent court ordered a stay which in fact will delay this implementation date.  If in fact these rules are promulgated and compliance will be required in 2012, utilities have gone on record saying they will have to shut down existing coal facilities (coal generates 50% of the energy in the US), and inevitable power shortages will result with rotating brown outs and black outs.

The utility MACT rule responds to a court decision that mercury emissions cannot be traded like pollutants covered by CSAPR.  So the Utility MACT rule sets standards that every generating site must meet, in effect ending, the “grandfathering” of old coal and oil plants enable by pollutant trading systems.

The Utility MACT rule was due to be final in November but the court gave EPA a one-month extension to consider final comments.  It is now under Office of management & Budget review, and is due out shortly. If promulgated, it will take effect in 2015, giving utilities three years to ready their facilities.

There’s no debate that the MACT rules would mean shutdown of many smaller, older coal plants that can’t be upgraded economically, and expensive upgrades to many other coal facilities. Shutdown predictions run somewhere between 30 and 70 gigawatts (this represents approximately   300 plants or more).  EPA estimates this rule will cost $10.9 billion annually in the next decade, for retrofits and replacements. As is always the case, when a governmental entitity estimates cost, you can pretty much expect that in the end, these costs will be between 5 times and 10 times their estimates. These costs therefore can be expect to be $100 billion or more. These costs incurred by the utilities will flow directly to ratepayers as the utility industry is a regulated industry—that’s you and me.  Putting these controls into place with these associated costs does not produce one single kwh of electricity.  If fact, the systems to be installed actually consume large amounts of power, so in effect, we are paying huge dollars for less power.

The costs, like those for CSAPR, are unevenly distributed, affecting coal-dependent utilities and regions more heavily. Most of the heavy manufacturing in this country are in fact in states where there is a higher concentration of coal plants.  The reason of course for this is that coal power other than nuclear is the cheapest power—cheap power—results in competitive products.  Competitive products result in companies growing and increasing jobs.  These higher costs will result in these businesses being less competitive in world markets.  Result—shutdowns—less jobs.

The good news is that just a few days ago, the US Court of Appeals for the District of Columbia Circuit temporarily blocked the Cross State Air Pollution Rule (CSAPR) just two days before it was set to go into effect.  The federal court ordered the EPA to continue administering the previously promulgated Clean Air Interstate Rule (CAIR) until a final decision can be made on the merits of the rule, likely this summer or fall.  Pundits believe that this is only a delay and later this year, the courts will rule in EPA’s favor.

House Republicans have made repeated attempts this year to stop EPA, but none of those efforts are even getting to a vote in Harry Reid’s obstructionist Senate.

It is a well known and proven fact that low cost electricity directly correlates with GDP growth and prosperity of citizens within one’s country.  We have been blessed as many other countries have not, with plentiful natural resources, coal ,natural  gas, rivers and streams for hydro, and geothermal.  Yet, this administration consistently places barriers in our ability to utilize these God given resources.  It simply makes no sense.

Look at the average cost of electricity among many OECD nations.  The reason why their costs of electricity are higher is real simple.  They simply do not have the natural resources in their country to use in power plants.  They must import—therefore, the costs are significantly higher.  But we all know, the Obama administration wants to level the playing field—that’s right—they clearly do not want the US to have a competitive advantage.  Look at the costs measured in cents per kwh.

Australia  19.7 cents/kwh
Denmark  39.3 cents/kwh
France  18.6 cents/kwh (they are 50% nuclear and why they are less than their fellow Europeans)
Germany  35.6 cents/kwh
Ireland  27.3 cents/kwh
Italy   27.2 cents/kwh
Spain   26.3 cents/kwh
Sweden  26.2 cents/kwh
USA   11.6 cents/kwh
China  5.1 cents

India `  Unknown but heavily subsidized by the government—estimated to be less than 5 cents/kwh

In China, 77% of current power generation is coal—China is rich in indigenous coal resources, and China is in fact the largest energy producer in the world.  They are building coal plants at a significant rate per year.  The last time I checked, their added generation per year is more than 20 times that of the US-almost all of which is fossil fuel production—coal.  China is the world’s largest producer and consumer of coal. Their own supply and purchases 2010 rose 25 percent from a year earlier.  This is why their cost per kwh is so low—coal produces cheap power!

In India, thermal plants account for over 65% of generation—that is almost all coal- AND 14.1 GW of new thermal mostly coal is under construction and expected to be put into use by December of 2012—2.1GW of hydro, and 1 GW of nuclear.  Just to give you a feel, in the US—we have about 6 GW under construction, much of which is gas fired combined cycles to replace retired coal plants.  It is literally impossible to permit a new coal plant in the US today.

We also know that the Europeans previously implemented very onerous emissions limits requiring huge investments in back end equipment—thus also contributing to their high costs of electricity.  Once again, this administration is exercising a policy of “let’s follow the European model”.

One thing for sure, the court’s stay decision will contribute to regulatory uncertainty for power companies and power markets in a time of significant EPC rulemaking activity.  The order suggests that litigation will remain a wild card for compliance and market planning.

This regulatory uncertainty along with this administration’s onerous rule making and over regulation continues to dampen any recovery in our country.  They simply don’t understand the concept that the private sector can deal with bad news, but they cannot deal with uncertainty—so when companies are faced with huge uncertainty, they don’t expand, they don’t invest, and they don’t create jobs.  I guess we shouldn’t expect anything else from a President who has never held a real job, who surrounds himself with advisors, 80% or more of which also never had a job in the private sector.  They simply are incapable of understand the capitalist business model since they have never done it!

America’s air is markedly cleaner than it was 40 years ago when the Clean Air Act was passed.  Just a few stats, between 1980 and 2010, carbon monoxide has been reduced 82%; Lead by 90%; nitrogen oxide by 52%, and sulfur dioxide by 76% without any significant change in the fuel mix of our generation assets in the US.  That means the industry has heavily invested in cleaning up coal and gas plants so that today they are extremely clean.  The mission, however, of the EPA is to incrementalize and tighten down any pollutants without regard to cost impact and will not be satisfied until these fossil assets are shut down completely.  The economic costs due to the rule of diminishing returns, simply is not practical.  Costs to the EPA of implementation mean nothing—they are out of balance with reality and until we get an administration that can “balance” them, we will continue to threaten our nation, our way of living, and our economic prosperity and most importantly, our national security.


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