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Tuesday, January 03, 2012

AP Reports Shows Real-World Impact of Regulation

The latest escapade on the political Left has been to step up their fictional accounts of regulation, namely, the assertion that more government regulation miraculously comes without costs for businesses, workers, and consumers.

In the midst of this bizarre crusade against economic common sense comes a Decemer 19 report from the Associated Press titled "AP Impact: EPA rule threatens older power plants," written by Dina Cappiello.

No one is about to claim that AP is captured by the conservative movement.

Before getting into the findings, we must first deal with an accusation hurled in the AP report. It is declared: "The survey, based on interviews with 55 power plant operators and on the Environmental Protection Agency's own prediction of power plant retirements, rebuts claims by critics of the regulations and some electric power producers. They have predicted the EPA rules will kill coal as a power source and force blackouts, basing their argument on estimates from energy analysts, congressional offices, government regulators, unions and interest groups. Many of those studies inflate the number of plants retiring by counting those shutting down for reasons other than the two EPA rules."

Hmm. We are not treated to any citations here. Well, all I can say is that most analyses and assessments I've come across made no such grandiose claims as inevitable blackouts and killing "coal as a power source" - at least not in the near term. In the long term, if strict emissions caps or carbon taxes were imposed, the threat to coal as a power source in the U.S. would be quite real.

Having said this, the AP report makes clear that coal is under attack, and a significant share of coal-fired plants are being made non-economic. Indeed, parts of the story are somewhat contradictory, as the writer tries to assert that the EPA rules are not solely shutting down plants, but then reporting that de facto the rules are shutting down plants. One gets the sense that this is a reluctant report from AP, but the findings are unmistakable.

What did the AP report in its key findings? Consider the following directly from the report:

• "More than 32 mostly coal-fired power plants in a dozen states will be forced to shut down and an additional 36 might have to close because of new federal air pollution regulations, according to an Associated Press survey. Together, those plants - some of the oldest and dirtiest in the country - produce enough electricity for more than 22 million households, the AP survey found."

• In areas with these plants: "Tax revenues and jobs will be lost, and investments in new power plants and pollution controls probably will raise electric bills."

• What are the regulations focused on here? "The first rule curbs air pollution in states downwind from dirty power plants. The second, expected to be announced Monday, would set the first standards for mercury and other toxic pollutants from power plant smokestacks. Combined, the rules could do away with more than 8 percent of the coal-fired generation nationwide, the AP found."

• It is also important to note what is not being assessed: "Other rules in the works, dealing with cooling water intakes at power plants and coal ash disposal, could cause the retirement of additional generating plants. Those rules weren't included in the AP survey."

• "In addition to anticipated retirements, about 500 or more units will need to be idled temporarily in the next few years to install pollution controls. Some of those units are at critical junctions on the grid and are essential to restarting the electrical network in case of a blackout, or making sure voltage doesn't drain completely from electrical lines, like a hose that's lost its water pressure."

• "For many plant operators, the new regulations were the final blow. For others, the rules will speed retirements already planned to comply with state laws or to settle earlier enforcement cases with the EPA. In the AP's survey, not a single plant operator said the EPA rules were solely to blame for a closure, although some said it left them with no other choice. ‘The EPA regulation became a game changer and a deal changer for some of these units,' said Ryan Stensland, a spokesman for Alliant Energy, which has three units in Iowa and one in Minnesota that will be retired, and four in Iowa that are at risk of shutting down, depending on how the final rules look. ‘Absent the EPA regulations, I don't think we would be seeing the transition that we are seeing today. It became a situation where EPA broke the back of coal.'"

• "In some places, a job at the power plant is the best thing going. Thirty people work at the Central Electric Power Cooperative plant in Chamois, Mo., where EPA regulations have put the plant in danger of shutting down. Some employees are looking to see if there are other power plants where they could find work."

• "Kentucky Utilities expects its customers to see as much as a 14 percent rate increase to make up for the $800 million it is spending to replace what will be retired, and the $1.1 billion it plans to spend on anti-pollution upgrades. Other power companies have applied to recoup the cost of retrofits or of building new gas-fired power plants. The EPA estimates that industry will spend $11 billion complying with the two rules by 2016. For others, the biggest issue with plant retirements is the loss of property taxes. As plants wind down and close, their assessed value drops, reducing what they pay to local governments."

These are quotes directly from AP's report. No editorializing involved. And the outcomes reported line up exactly with what economics tells us about the impact of regulation, on both an individual and cumulative basis. That is, with regulation comes increased costs that will result in closed businesses, increased costs for businesses, higher prices for consumers, and reduced economic activity that translates into lost tax revenues. Those are the straightforward and very unfortunate realities when government steps in and piles on with regulations.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

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