Coal's Competition Shouldn't Include the Federal Government

COMMENTARY Government Regulation

Coal's Competition Shouldn't Include the Federal Government

Jun 7, 2016 3 min read
Nicolas Loris

Former Deputy Director, Thomas A. Roe Institute

Nick is an economist who focused on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.

Who can deny the value of competition? In sports, the world’s greatest athletes go toe-to-toe and make each other better. In business, competition rewards innovative ideas and helps entrepreneurs flourish. In both instances, consumers benefit.

But not when the federal government skews the rules. That’s what’s happening with U.S. energy policy right now — to the detriment of taxpayers, energy consumers and free enterprise.

Take the recent bankruptcies of some of the world’s largest coal companies. Several factors created the economic turmoil the industry is facing. Market demand for metallurgical coal, primarily used to make steel, dropped considerably. Cheap and abundant natural gas supplied from the shale boom in the U.S. resulted in fuel switching.

If market factors result in a transition away from coal and toward more economical sources of energy, the economy will stand to benefit. More cost-effective electricity, whether it’s derived from natural gas, nuclear power or solar, will save families money and lower the cost of doing business.

But that’s not entirely what’s happening here. One culprit that cannot be overlooked in coal’s reduction as an affordable, reliable power supply is burdensome federal government regulations.

According to a recent report by the Energy Information Administration, more than 80 percent of the nearly 18 gigawatts of electric generating capacity retired in 2015 was conventional steam coal. The Environmental Protection Agency cites the Mercury Air & Toxics regulation causing 30 percent of U.S. coal retirement in 2015.

The EPA estimates that the regulation would have cost $10 billion per year in compliance expenses. Other estimates have been higher. Regardless, we’re already seeing power-plant closures, pushing energy costs higher for families and businesses.

Maybe you’re thinking those costs are steep but worth it. Reducing mercury emissions sounds like a laudable goal. But you don’t have to scratch too deeply beneath the federal government’s own cost-benefit analysis to realize it is all economic pain, no environmental gain.

According to the EPA’s own analysis, the rule would generate $53 billion to $140 billion in annual health benefits. But the actual mercury reductions (the direct benefits of the regulation) would produce at most $6 million in benefits. In other words, 99.9 percent of the claimed environmental benefits are covered by existing regulations.

The same holds true for the Obama administration’s global-warming regulations. No matter what your position on man’s contribution to global warming is, the federal government’s regulations would have a negligible impact, at best, on global temperatures.

But they do carry significant costs. One cog of the administration’s assault on coal will effectively prohibit the construction of new coal-fired power plants. And the global warming regulations for existing power plants called the Clean Power Plan, which the Supreme Court could very well judge to be illegal and unconstitutional, will prematurely force more power plant closures.

The costs have tremendous rippling effects. Because energy is a necessary input for almost all goods that consumers buy, households are hit by higher prices multiple times over. Global-warming regulations will increase electricity expenditures for a family of four by at least 13 percent a year. Cumulatively, they will cost American families more than $20,000 in lost income by 2035 and impose a $2.5 trillion hit on the economy.

Here’s the other issue with the Clean Power Plan. Power plants in America are already clean. They’re not operating like those in China. Through a combination of regulations and technological innovations, the U.S. industry has dramatically reduced hazardous air pollutants. But the theme behind the federal government’s new regulations is to ignore any reasonable risk assessment and add increasingly stringent rules that put hardworking Americans out of a job, drive up energy bills and force companies to close their doors for good.

In many senses, cleaning the environment is like cleaning a messy house. Taking care of the big things may require some work but have significant impact. Vacuuming, washing the floors, picking up clothes and dusting makes a big improvement. Eventually, as the chores become more difficult, the cost of finishing them is equally as high, if not higher, but the benefit is much smaller. There comes a point where the house is overwhelmingly clean and the cost of moving your refrigerator to clean the small space between that and your cabinets isn’t worth it.

The same holds true for the environment. Air and water quality in the U.S. have vastly improved. Pollution is largely in check. Now, with each additional regulation, the costs grow higher and the benefits shrink, either to a vanishing point or where they are counterproductive. Congress should now empower states to take over the reins for environmental regulation.

Politicians are notorious for breaking promises, but President Barack Obama has kept his word on his commitment to bankrupt coal companies. And the economy will suffer because of it.

Originally published via Tribune News Service