EPA’s Sum Effect = Net Loss

My response to this week’s question on National Journal Energy & Environment Policy Experts Blog:   The clean air rules put forward by the Environmental Protection Agency will have a profound impact on our struggling economy. EPA’s own data show that the CAA of 1990 have had a negative impact on GDP and growth see figures from EPA modeling here. The new rules are certain to add the uncertainty to the cost of electrical generation as well for other energy using and producing industries. Signs of the impact of uncertainty on the U.S. economy can be seen in the fact that gross private domestic investment is still $327 billion lower in the 3rd quarter of 2011 than in the 4th quarter of 2007 see chart. Each $1 billion loss in investment is associated with 15,000 to 22,000 fewer jobs. In my testimony from February 2011 to the House Energy and Power Subcommittee on the impact of EPA’s regulation of GHGs under the Clean Air Act, I highlight that if U.S. capital spending declines by $25 to $75 billion, in 2014 there would be an economy wide job loss of 476,000 to 1,400,000 when direct, indirect and induced effects are included. As a…

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Great Discussion with Eighth Grade Atlanta Class on Energy and Climate Change Issues

I had a great dialogue with a group of bright eighth grade students today at Westminster Schools in Atlanta, GA.  We spoke for close to an hour over Skype on a lot of interesting topics including whether or not we should have a carbon tax, if and when the price of renewables like solar panels and hybrid cars will ever come down, and whether or not the government should be funding green energy projects after Solyndra.  The students also asked my opinions on the Kytoto Protocol. Throughout the conversation I underscored the fact that climate change is a global issue and therefore needs a collaborative approach that brings on all nations, particularly developing nations like China (whose GHG emissions exceed those of the U.S.).  I also highlighted the importance of making wise choices in energy subsidies and not to pick risky ventures that don’t attract private investment.  Any type of policy approach to tackle climate change must look at the costs and benefits, particularly now with our struggling economy.  U.S. proposals like cap and trade, carbon tax and others that don’t bring developing nations to the table put a strain on our industries and economy, resulting in job loss, higher…

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See my op-ed in The Hill today

You can read my op-ed “The High Price of EPA Regulations” in The Hill newspaper today. The high price of EPA regulations By Dr. Margo Thorning, senior vice president and chief economist of the American Council for Capital Formation – 10/24/11 The Environmental Protection Agency (EPA) faced scrutiny on Capitol Hill again this week over the high costs of its record number of environmental regulations.  During a hearing of the House Oversight and Government Reform Subcommittee, the agency’s air chief denied consequences of the Clean Air Act on jobs and the economy and argued that her agency’s rules relating to automobiles and fuel economy actually creates jobs and support small businesses. These claims echo those of EPA Administrator Lisa Jackson, who testified earlier this summer before the Senate Environment and Public Works Committee and cited specious economic benefits of the Clean Air Act Amendments of 1990. An EPA report “The Benefits and Costs of the Clean Air Act from 1990 to 2020” states that the economic value of the Act’s air quality improvements will “reach almost $2 trillion for the year, a value which vastly exceeds the cost of efforts to comply with the requirements of the 1990 Clean Air…

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Uncertainty? Over-regulation? Here’s the proof…

Treasury Department’s Jan Eberly recently made a bold and puzzling statement that there is no “data” to support the notion that regulatory uncertainty is holding back hiring and economic growth. Signs of the impact of uncertainty on the U.S. economy can be seen in the fact that gross private domestic investment is still $327 billion lower in the 3nd quarter of 2011 than in the 4th quarter of 2007 (see chart below).  Each $1 billion loss in investment is associated with 15,000 to 22,000 fewer jobs. The federal government clearly recognizes this phenomenon as pointed out in a statement from the Energy Information Administration that the cost of capital for a coal-fired utility investment could rise by 42% (from 7% to 10% or a 3 percentage point increase from 7%) due to the uncertainty surrounding environmental regulations is a sign the government recognizes this phenomenon.  From EIA: “Although currently there is no Federal legislation in place that restricts greenhouse gas (GHG) emissions, regulators and the investment community have continued to push energy companies to invest in technologies that are less GHG-intensive. The trend is captured in the AEO2011 Reference case through a 3-percentage-point increase in the cost of capital when evaluating…

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Listen to Chuck…

Charles Schwab’s Wall Street Journal oped today highlights the negative impact that uncertainty has on investment.  The ACCF has been making this very case for years. The business community continues to face uncertainty on an unusually large number of fronts. For example, the implementation of health care, financial reform legislation and the unknown cost of complying with various EPA regulations all add complexity to business plans for hiring and investment. In fact, gross private domestic investment was down by $345 billion in the second quarter of 2011, relative to the fourth quarter of 2007. Recent historical data show that each $1 billion dollar decrease in investment is associated with a loss of 15,500 jobs in the U.S and vice versa. Weakness in European markets and uncertainty about how the EU will handle the countries unable to meet their debt obligations is a further source of uncertainty; one quarter of U.S. exports currently go to Europe. See my February 2011 testimony for the House Committee on Energy and Commerce on the impact of the uncertainty stemming from EPA’s  greenhouse gas regulations on U.S. investment and job growth.

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EPA’s costly overhead

The cost to administer EPA’s Greenhouse Gas regulations will be staggering if the Tailoring Rule is not upheld according to the agency’s own estimates. The cost of administrative paperwork alone will be nearly $23 billion per year and the agency will require the hiring of 230,000 new government employees to produce 1.4 billion work hours for paper work and permit reviews.  However, even if the Tailoring  Rule is upheld, there are substantial negative impact  on  U.S. jobs and GDP growth as I highlighted in my February  2011 testimony before the House Subcommittee on Energy and Power.

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