Legislation designed to address global warming failed in
Congress this year, largely due to concerns about its high costs
and adverse impact on an already weakening economy. The
congressional debate will likely resume in 2009, as legislators try
again to balance the environmental and economic considerations
on this complex issue. Meanwhile, the Environmental Protection
Agency (EPA), pursuant to a 2007 Supreme Court decision, has
initiated steps toward bypassing the legislative process and
regulating greenhouse gas emissions under the Clean Air Act.
The EPA's Advance Notice of Proposed Rulemaking (ANPR) is
nothing less than the most costly, complicated, and unworkable
regulatory scheme ever proposed. Under ANPR, nearly every
product, business, and building that uses fossil fuels could face
requirements that border on the impossible. The overall cost
of this agenda would likely exceed that of the legislation
rejected by Congress, reaching well into the trillions of
dollars while destroying millions of jobs in the manufacturing
sector.[1] The ANPR is clearly not in the best
interests of Americans, and the EPA should not proceed to a Notice
of Proposed Rulemaking and final rule based upon it.
Climate Legislation
Concern that carbon dioxide and other greenhouse gases are
gradually warming the planet has emerged as the major environmental
issue of the day, and certainly the most hyped one. Carbon
dioxide is a naturally occurring component of the air, but is
also the ubiquitous and unavoidable by-product of fossil fuel
combustion, which currently provides 85 percent of America's
energy. Thus, any effort to substantially curtail such emissions
would have extremely costly and disruptive impacts on the economy
and on living standards.
For this reason, the federal government has been cautious about
embarking on mandatory carbon reductions. In 1997, the U.S. Senate
unanimously resolved to reject any international climate change
treaty that unduly burdened the U.S. economy or failed to engage
all major emitting nations, such as China and India. Although the
Kyoto Protocol was signed by the U.S. later that year, neither
President Bill Clinton nor President George W. Bush ever
submitted the treaty to the Senate for the required
ratification. This has shown itself to be a wise move: Many,
if not most, of the European and other developed nations that
ratified the treaty are failing to reduce their emissions due to
the prohibitive costs in doing so.
Legislatively, Congress has thus far rejected every attempt to
control carbon dioxide emissions. Chief among the legislative
proposals in 2008 was S. 2191, the America's Climate Security Act
of 2007, originally sponsored by Senators Joe Lieberman (I-CT)
and John Warner (R-VA). This was a so-called cap-and-trade bill
that would set a limit on the emissions of greenhouse gases,
especially carbon dioxide from the combustion of coal, oil, and
natural gas. Each power plant, factory, refinery, or other
regulated entity would have been allocated rights to emit
limited amounts of carbon dioxide and other greenhouse gases. Those
entities that reduced their emissions below their annual allotment
could sell their excess allowances to those that did not -- the trade
part of cap and trade. The bill would start with a mandated
emissions freeze at 2005 levels in 2012, and end with a 70 percent
reduction by 2050.
In effect, this bill would have acted like a tax on energy,
driving up its cost so that businesses and consumers are forced to
use less.
Last June, America's Climate Security Act was withdrawn by its
Senate supporters after only three days of debate. A Heritage
Foundation analysis detailed the costs of the bill, which
included a 29 percent increase in the price of gasoline, net
job losses well into the hundreds of thousands, and an overall
reduction in gross domestic product of $1.7 to $4.8 trillion by
2030.[2] At the time of the debate, gasoline was
approaching $4 per gallon for the first time in history, and signs
of a slowing economy were beginning to emerge. Economically
speaking, the bill was one of the last items on the agenda that
Americans wanted, and its Senate sponsors recognized that. Beyond
the costs, the bill would have -- even assuming the worst case
scenarios of future warming -- likely reduced the earth's future
temperature by an amount too small to verify.[3]
The debate is sure to resume in 2009, but the economic concerns
about such measures remain. Though gasoline prices may be lower
next year than the last time climate legislation came to a vote,
unemployment will likely be higher as will unease about the overall
state of the economy. Thus, the legislative effort to place costly
restrictions on energy still faces an economic headwind.
Notwithstanding the state of the economy, such measures will
always fail any reasonable cost-benefit test given their high costs
and environmental benefits that are marginal at best.
regulation as an Alternative to
Legislation
While proponents of greenhouse gas restrictions have lobbied for
additional legislation, they have also tried to force the EPA to
regulate carbon dioxide as a pollutant under existing law. In
1999, an environmental activist group sued the EPA over its refusal
to restrict such emissions from motor vehicles under the Clean Air
Act. The case eventually reached the Supreme Court, which in April
2007 ruled in a five-to-four decision against the EPA.
The decision did not require the EPA to change its position and
begin regulating carbon dioxide from vehicle exhaust; it only
required the agency to demonstrate that whatever it chooses to do
complies with the requirements of the Clean Air Act. Nonetheless,
the agency's detailed ANPR, published on July 30, 2008, appears to
treat such regulation as a foregone conclusion. Although the ANPR
is preliminary in nature, the level of detail (the ANPR and
supporting documentation exceed 18,000 pages) suggests that the EPA
has already decided to impose regulations that are
unprecedented in their cost, complexity, and reach.
The reasons for Congress's reluctance to enact global
warming legislation are every bit as relevant to the debate
over whether or not the EPA should achieve the same results through
regulations. This is especially true given the many
shortcomings of the Clean Air Act as an instrument for regulating
carbon dioxide emissions -- for which the statute was not
intended. In effect, the measures detailed in the ANPR would
require action at least as costly as comparable cap-and-trade
bills, and likely more so given the added difficulty of doing it in
a much more convoluted fashion.
Regulating Vehicles -- and Almost
Everything Else
Because no technology exists to date that offers the possibility
to filter out carbon dioxide emissions from motor vehicle exhaust,
the only way to reduce emissions is to use less fuel. In the ANPR,
the EPA contemplates higher gas mileage standards for motor
vehicles beyond those already scheduled to be imposed in accordance
with the 2007 Energy Independence and Security Act. The EPA
also discusses strict requirements for everything from airplanes to
ships to trains to lawnmowers, all of which could be subject to new
design specifications and usage limitations as well as fuel
economy standards, as described in painstaking detail in the
ANPR.
Beyond regulating anything that is mobile and uses energy, the
ANPR also contemplates targeting anything that is immobile and uses
energy -- commercial and non-commercial buildings, large and
small businesses, and farms. Under the Clean Air Act, once carbon
dioxide emissions from motor vehicles are regulated, emissions from
stationary sources must also be controlled under the New Source
Review (NSR) and other Clean Air Act programs because they
apply to all pollutants subject to regulation anywhere else in the
statute. Even if the agency tries to rein in the reach of its
regulation, it will almost certainly face litigation by
environmentalists opposing such restraint.
Given that the existing threshold for regulation under the Clean
Air Act -- 250 tons of emissions per year, and in some cases as
little as 100 tons per year -- is easily met in the case of carbon
dioxide emissions, the agency could impose new and onerous NSR
requirements heretofore limited to major industrial facilities.
Other Clean Air Act programs, such as the Title V permitting
program and the hazardous-air-pollutants program, have even lower
thresholds, creating a regulatory maze both restrictive
and redundant.
Most pollutants regulated under the Clean Air Act are trace
compounds like ozone or mercury that are typically measured in
parts per billion, so these threshold levels are sensible to
distinguish de minimis contributors from significant ones.
But carbon dioxide is not a trace compound, thus, existing Clean
Air Act thresholds are ill suited. Background levels alone account
for 275 parts per million, and even relatively small usage of
fossil fuels could reach these thresholds. Thus, even the kitchen
in a restaurant, the heating system in an apartment or office
building, or the activities associated with running a farm could
cause these and other entities -- potentially more than a
million buildings, 200,000 manufacturing operations, and 20,000
farms[4] -- to face substantial and unprecedented
requirements. Churches, hospitals, schools, and government
buildings could also be subjected to these requirements.
This type of industrial-strength EPA red tape that imposes an
average of $125,000 in costs and takes 866 hours to complete[5] could
now be imposed, for the first time, on a million or more entities
beyond the large power plants and factories that have
traditionally already been regulated in this manner. Even more
significant than the administrative costs is that all of these
entities would be required to install costly technologies and
operate under certain restrictions, as determined by EPA
bureaucrats.
In sum, a host of complicated and redundant regulations could be
applied to nearly every product, nearly every business, and
nearly every building in America that uses fossil fuels. The
ANPR, if finalized in anything near its current form, would create
an environmental regulatory scheme more costly and intrusive than
all the others combined.
The Costs of the ANPR
Either through legislation or regulation, efforts to reduce
fossil fuel emissions will impose costs throughout the
economy. For purposes of this analysis of the ANPR, the Heritage
Foundation ignores the up-front administrative and compliance costs
of imposing such an unprecedented crackdown both for regulated
entities and for federal and state regulators. Heritage analysts
instead assume the unlikely scenario of successful ANPR
implementation and focus only on the cost of the rules in the form
of higher energy costs.
The impact on the overall economy, as measured by gross
domestic product (GDP), is substantial. The cumulative GDP losses
for 2010 to 2029 approach $7 trillion. Single-year losses exceed
$600 billion in 2029, more than $5,000 per household. (See
Chart 1.) Job losses are expected to exceed 800,000 in some years,
and exceed at least 500,000 from 2015 through 2026. (See Chart 2).
Note that these are net job losses, after any jobs created by
compliance with the regulations -- so-called green jobs -- are taken
into account. Hardest-hit are manufacturing jobs, with losses
approaching 3 million. (See Chart 3). Particularly vulnerable are
jobs in durable manufacturing (28 percent job losses), machinery
manufacturing (57 percent), textiles (27.6 percent), electrical
equipment and appliances (22 percent), paper (36 percent), and
plastics and rubber products (54 percent). It should be noted that
since the EPA rule is unilateral and few other nations are likely
to follow the U.S. lead, many of these manufacturing jobs will be
outsourced overseas.
The job losses or shifts to lower paying jobs are substantial,
leading to declines in disposable income of $145 billion by
2015 -- more than $1,000 per household.
Conclusion
Virtually every concern heightened by the economic
downturn, especially job losses, would be exacerbated under the
ANPR. As with cap-and-trade legislation, the EPA's suggested
rulemaking would be poison to an already sick economy. But even in
the best of economic times, this policy would likely end them. The
estimated costs -- close to $7 trillion dollars and 3 million
manufacturing jobs lost -- are staggering. So is the sweep of
regulations that could severely affect nearly every major
energy-using product from cars to lawnmowers, and a million or more
businesses and buildings of all types. And all of this sacrifice is
in order to make, at best, a minuscule contribution to an
overstated environmental threat. Congress has wisely resisted
implementing anything this costly and impractical. The fact that
unelected and unaccountable EPA bureaucrats are trying to do the
opposite is all the more objectionable.
Ben Lieberman is Senior
Policy Analyst in Energy and the Environment in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage
Foundation.