Mounting Opposition to EPA’s Carbon Rule

AEA Launches Initiative Detailing How States and the Public are Fighting Back

WASHINGTON – Today, the American Energy Alliance is launching SmartPowerPlan.org—a hub for the latest information on how states and the public are fighting back against the EPA’s so-called Clean Power Plan.

This one-stop shop provides the latest news, legal analysis, public comments, and state action against the EPA’s carbon rule. The site also includes a legislative tracker and an interactive map detailing which states are taking action to protect their citizens from the rule.

Screen Shot 2015-07-30 at 3.23.06 PM
Opposition to EPA’s carbon rule is strong and growing. A majority of states have already demonstrated opposition to the proposed rule, with six governors threatening to not submit a plan.

Due in part to this growing opposition, EPA is expected to make adjustments when it announces its final rule as early as next week. In hopes of goading states to submit plans, it has been reported that EPA is expected to delay deadlines and offer up “incentives” for states that submit plans early and deploy green energy and energy efficiency programs. State leaders should not let these bribery schemes dupe them into submitting state plans.

Here are 5 issues to keep in mind before the final the rule is released:

1.) How does EPA try to enforce “building blocks” it lacks the authority to impose?First and foremost, the EPA doesn’t have the legal authority to regulate power plants under Section 111d since they are already regulated under Section 112 (MATS). They also don’t have the legal authority to go outside the fence and regulate building blocks 2-4 at the state level. To do so would force states to overhaul their electricity systems in violation of the anti-commandeering and anti-coercion doctrines. If President Obama wants to impose cap and trade or a carbon tax scheme, he needs to go through the legislative process (something that his own party rejected when they controlled the House and Senate) not just rely on regulatory fiat.

2.) Does EPA recognize its cost estimates don’t reflect reality? The Supreme Court recently remanded EPA’s mercury rule for failing to consider costs. EPA’s carbon rule is expected to be much costlier, likely raising electricity rates by double digits in many states. A new study from the National Rural Electric Cooperative Association found that a 10 percent increase in electricity rates would destroy 882,000 jobs annually, on average, between 2020 and 2040, with peak job losses of 1.2 million in 2021. A 25 percent increase in utility bills would destroy 1.5 million jobs annually with a peak of 2.2 million in 2021. No amount of “flexibility” EPA offers in its final rule will prevent electricity rates from rising and Americans from suffering.

3.) Does EPA finally address the health – wealth link? The EPA has thus far failed to properly consider the impact of rising electricity prices on Americans’ health. A major factor in health outcomes is socioeconomic status (I.e., whether you have a job and can pay your bills). By raising energy prices and making people poorer, EPA’s regulation could also make people sicker. This would undermine EPA’s claims that the rule benefits public health. EPA cannot continue to ignore the negative impact of higher energy prices on Americans health and well-being.

4.) Does EPA consider what will happen if states don’t submit plans? As noted above, EPA lacks the legal authority to impose any of its four “building blocks”. As a result, the only way to achieve the proposed emission reductions is for states to submit plans that self-impose these measures. However, a growing number of states are resisting EPA’s call to submit a plan: to date, six governors have announced they do not intend to submit a plan and more than a dozen states have enacted legislative hurdles. If enough states reject the regulation, EPA could be forced to severely amend the emission target or withdraw the rule altogether.

5.) How does EPA try to justify a climate rule that does nothing to address climate change? Despite these enormous costs on families and businesses, the rule would yield little to no benefit to the climate. For instance, the stated purpose of the proposed rule is to fight climate change by reducing carbon dioxide emissions by 30%. But using the EPA’s own models, the rule would amount to a 0.02 degrees Celsius difference in world temperatures by 2100 and reduced sea levels by the equivalent of three sheets of paper. If EPA’s final rule reduces the emission target under the guise of “flexibility” these puny benefits will be even smaller. All for the symbolic gesture that America is doing something on climate.

###

5 Questions to Consider as EPA Issues Final Carbon Rule

The Obama administration is set to finalize its signature carbon rule, the so-called “Clean Power Plan”, as early as next week. This regulation aims to reduce U.S. carbon dioxide emissions by 30 percent by 2030 and is estimated to cost over $350 billion. To implement the rule, EPA is depending on states to do the heavy lifting by submitting their own state implementation plans. However, states and other interested parties have submitted a litany of comments and concerns about the rule, and a number of states have even announced that they will not submit a plan.

There has been a lot of speculation about how EPA will address these comments and concerns. It has been reported that EPA could delay the deadlines for submitting a plan and complying with the rule, and that the agency will offer up “incentives” for states that submit plans early and deploy green energy and energy efficiency programs. The agency is hoping that their bribery schemes will goad states into submitting plans. However, these superficial adjustments do not address the underlying flaws with the rule. States should not be duped into submitting plans to the EPA. Here are 5 issues to keep in mind before the final the rule is released:

  1. How does EPA try to enforce “building blocks” it lacks the authority to impose? First and foremost, the EPA doesn’t have the legal authority to regulate power plants under Section 111d since they are already regulated under Section 112 (MATS). They also don’t have the legal authority to go outside the fence and regulate building blocks 2-4 at the state level. To do so would force states to overhaul their electricity systems in violation of the anti-commandeering and anti-coercion doctrines. If President Obama wants to impose cap and trade or a carbon tax scheme, he needs to go through the legislative process (something that his own party rejected when they controlled the House and Senate), not just rely on regulatory fiat.

  2. Does EPA recognize its cost estimates don’t reflect reality? The Supreme Court recently remanded EPA’s mercury rule for failing to consider costs. EPA’s carbon rule is expected to be much costlier, likely raising electricity rates by double digits in many states. A new study from the National Rural Electric Cooperative Association found that a 10 percent increase in electricity rates would destroy 882,000 jobs annually, on average, between 2020 and 2040, with peak job losses of 1.2 million in 2021. A 25 percent increase in utility bills would destroy 1.5 million jobs annually with a peak of 2.2 million in 2021. No amount of “flexibility” EPA offers in its final rule will prevent electricity rates from rising and Americans from suffering.

  3. Does EPA finally address the health – wealth link? The EPA has thus far failed to properly consider the impact of rising electricity prices on Americans’ health. A major factor in health outcomes is socioeconomic status (i.e., whether you have a job and can pay your bills). By raising energy prices and making people poorer, EPA’s regulation could also make people sicker. This would undermine EPA’s claims that the rule benefits public health. EPA cannot continue to ignore the negative impact of higher energy prices on Americans’ health and well-being.
  4.  

  5. Does EPA consider what will happen if states don’t submit plans? As noted above, EPA lacks the legal authority to impose any of its four “building blocks”. As a result, the only way to achieve the proposed emission reductions is for states to submit plans that self-impose these measures. However, a growing number of states are resisting EPA’s call to submit a plan: to date, six governors have announced they do not intend to submit a plan, and more than a dozen states have enacted legislative hurdles. If enough states reject the regulation, EPA could be forced to severely amend the emission target or withdraw the rule altogether.
  6.  

  7. How does EPA try to justify a climate rule that does nothing to address climate change? Despite these enormous costs on families and businesses, the rule would yield little to no benefit to the climate. For instance, the stated purpose of the proposed rule is to fight climate change by reducing carbon dioxide emissions by 30%. But using the EPA’s own models, the rule would amount to a 0.02 degrees Celsius difference in world temperatures by 2100 and reduced sea levels by the equivalent of three sheets of paper. If EPA’s final rule reduces the emission target under the guise of “flexibility” these puny benefits will be even smaller. All for the symbolic gesture that America is doing something on climate.

Given these fundamental flaws, states should reject EPA’s carbon regulation. Refusing to submit a state plan is a right of states under the Clean Air Act. Numerous governors, legislators, and other state leaders have risen in opposition, with likely more to follow once the rule is final. Any cosmetic changes EPA makes to the final rule cannot address the underlying flaws with the regulation. States that want to protect their constituents from higher energy bills are right to resist.

Clinton’s Anti-Energy Pledge Would Make Electricity Rates Skyrocket

Hillary Clinton recently proposed a “comprehensive energy and climate agenda,” which includes increasing installed solar capacity to 140 gigawatts (GW) by 2020. She claims this would be achieved by installing 500 million more solar panels across the country, and doing so would increase the current solar capacity by 700 percent: a 32 percent annual growth rate.

Installing 140 GW of solar panels is unwise for three reasons: 1) electricity from new solar panels is significantly more expensive than electricity from existing resources, 2) new solar panels are one of the highest-cost sources of new electricity generation, and 3) at high penetration levels, solar panels disrupt the reliable functioning of the power grid.

Putting a Price on Clinton’s Solar Pledge

The Energy Information Administration (EIA) publishes estimates of the levelized cost of electricity (LCOE) from new resources, which takes into account the capital and operating costs of new power plants over their operating lives. EIA estimates that electricity from a new solar photovoltaic (PV) system will cost $125.3 per megawatt hour (MWh) in 2020. By contrast, we calculated in a recent paper that electricity generated from existing coal plants costs $38.40/MWh, on average, while electricity from existing nuclear plants costs $29.60/MWh.

Clinton’s plan would lead to the closure existing coal plants and the building of new solar PV that are 322 percent more expensive. Compared to existing nuclear plants, new solar is 417 percent more costly. In both cases, electricity costs would necessarily skyrocket with any appreciable increase in solar power. Certainly at the levels Clinton is proposing, the cost associated with increasing solar penetration would be a significant burden on American families.

Cost-of-Clinton-Planrev

Going All-In on Solar Power is Bad Policy

Clinton’s plan would dramatically increase the cost of electricity by building high-cost and unreliable (i.e. non-dispatchable) sources of electricity generation—such as solar—that do not reduce the need for other generation resources. Solar power cannot completely replace reliable natural gas, coal, or nuclear plants because solar cannot be counted on to produce electricity when it is needed.

As the chart below shows, increased generation from solar panels creates a dangerous situation for grid operators—solar generation falls off sharply in the afternoon, just as system demand is peaking, causing dispatchable sources of generation to ramp up and make up the difference. Under Clinton’s plan, this pattern would be an everyday occurrence.

duck curve

Source: http://www.utilitydive.com/news/the-epic-fail-on-solars-doorstepand-how-the-grid-can-help/324411/

Solar panels can only be built in addition to reliable sources, not to replace them. As a result, solar power can reduce the fuel costs of some natural gas plants—for example, by reducing the amount these plants operate when the sun is shining. However, solar panels do not replace natural gas plants or reduce the need for reliable plants at times of peak demand. This means that solar cannot reduce the overall capital costs of the reliable generation system, and only increases the overall capital cost of the generation system when the cost of solar panels is considered.

Not only does solar increase capital costs, but subsidized solar power has a parasitic effect on low-cost baseload power plants. Adding a large amount of subsidized solar adversely affects the economics of baseload power plants and this means low-cost, reliable electricity generation resources will be shut down.

On a more abstract level, Clinton’s plan represents a shift backwards—Americans need more energy, not less, and we need the most effective and lowest cost sources. Clinton’s plan would promote expensive, unreliable energy sources and shut down our most affordable and reliable sources. Rather than giving us an energy plan, Clinton has given us a new blueprint for making electricity prices skyrocket.

Conclusion

Hillary Clinton’s plan to increase installed solar capacity by 700 percent by 2020 is uneconomic and would burden Americans with significantly higher electricity costs: new solar is 322 percent more costly than existing coal resources and 417 percent more expensive than existing nuclear. The only way to achieve Clinton’s goal would be through spending billions of dollars on subsidies such as the solar Investment Tax Credit and enforcing strict environmental regulations aimed at shutting down coal plants, including the administration’s plan to regulate carbon dioxide emissions from existing power plants—both of which Clinton supports.

If Wind Energy is “Strong” Why Does it Need Subsidies?

Last week, the American Wind Energy Association (AWEA) released its second quarter 2015 U.S. wind energy market report. In a press release, AWEA CEO Tom Kiernan hails the report as indicative of a vibrant wind energy industry: “With a near-record amount of wind capacity under construction, this looks to be a strong year for American wind power.” However, Kiernan quickly changes tone, stating that “…to create longer term stability for the industry the full Senate and the House of Representatives must move quickly to extend the PTC,” or wind Production Tax Credit.

If the wind industry is “strong,” then why does it need subsidies for “stability”? This doublespeak is a favorite tactic of AWEA, who continues to boast about how vibrant the wind industry is while also lobbying for more subsidies that they supposedly need to survive. AWEA and wind advocates can’t have it both ways: if they expect Americans to believe their claims that wind energy is booming, then the industry should give up the PTC and stand on its own two feet.

AWEA’s quarterly report shows growth in subsidized wind

According to AWEA’s report, subsidized wind energy experienced quite the bump in installation and capacity numbers. AWEA claims that “the U.S. wind industry installed 845 turbines totaling 1,661 MW, a record for wind installations in the second quarter.” Further, AWEA claims that the 1,994 megawatts installed in the first half of 2015 more than doubles the amount installed during the same period in 2014.

In addition to those numbers, AWEA shows yearly increases in overall capacity since 2001, and shows a positive trend in wind capacity under construction since 2011. However, this growth is not organic, but dependent on taxpayer subsidies. According to EIA, in 2013 federal wind subsidies totaled $5.9 billion. Wind energy is inextricably tied to government subsidies, including the PTC, and claims of wind energy growth should take these massive government handouts into account.

The wind industry’s broken record

For decades, wind advocates have claimed that wind will be cost competitive in the near future, thereby negating the need for the PTC. Below are some examples from AWEA officials:

1986 – A representative of the American Wind Energy Association testified: “The U.S. wind industry has … demonstrated reliability and performance levels that make them very competitive. It has come to the point that the California Energy Commission has predicted windpower will be that State’s lowest cost source of energy in the 1990s, beating out even large-scale hydro.”(Statement of Michael L.S. Bergey, American Wind Energy Association in Renewable Energy Industries, Hearing before the Subcommittee on Energy Conservation and Power of the Committee on Energy and Commerce, House of Representatives, 99th Cong., 2nd sess. 1986)

1991 – Dale Osborn, Former AWEA President: “The Wind Industry Could Produce, At Competitive Prices, Up To One-Third Of The Nation’s Electricity Needs Within The Next 30 Years.” “‘Here we go again. Nuclear, coal and oil appear to be receiving all the benefits, while clean, proven energy technologies like wind are receiving little serious attention,’ said Dale Osborn, president of the California-based company, U.S. Windpower, and president of the American Wind Energy Association. ‘Given an equal opportunity to compete fairly, the wind industry could produce, at competitive prices, up to one-third of the nation’s electricity needs within the next 30 years.’” (“Bush Administration’s Energy Plan Represents Another Missed Opportunity For America, Says U.S. Windpower,” PR Newswire, 2/20/91)

2012 – Denise Bode, Former AWEA CEO on PTC Phase-out. “In coordination with any phase down of the credit, we would urge Congress to consider additional policy mechanisms to encourage a diverse portfolio that includes renewable energy. With the policy certainty that accompanies a stable extension, the industry believes it can achieve the greater economies of scale and technology improvements that it needs to become cost competitive without the PTC.” (AWEA letter to Congress. 12/12/12)”

Despite claims that wind will soon no longer need subsidies to compete, year in and year out AWEA spends millions of dollars lobbying Congress to extend the wind PTC. While AWEA has supported the idea of a phase out in the past, the industry now seems more interested in perpetual subsidies than keeping its word.

Note about “capacity” versus generation

Wind lobbyists love to tout growth in installed wind capacity. AWEA points out that last year wind capacity installations eclipsed those of any other energy source, including natural gas. But electrical capacity isn’t the same as electricity generation. According to EIA, capacity is the maximum amount of electricity an energy source can produce. Generation is the amount of electricity an energy source actually produces. It is the difference between potential and reality.

This key difference underscores one of wind energy’s big weaknesses: it isn’t good at turning potential energy into real energy. EIA gives wind a “capacity factor” of 34 percent, which means wind reaches its maximum output (capacity) just one-third of the time. By contrast, nuclear has an average capacity factor of 92 percent and coal 61 percent, according to EIA.[i] Because of these varying capacity factors, capacity additions bear little resemblance to electrical generation. For example, 1 gigawatt of nuclear capacity will produce over 3 times the amount of generation that 1 gigawatt of wind capacity can produce.

Wind energy isn’t good at converting capacity into generation because the wind cannot be controlled. When the wind isn’t blowing, wind installations aren’t producing. More reliable energy sources like nuclear, coal, and natural gas can produce energy at any time precisely when it is needed. For this reason, reliable sources like nuclear and coal “generally have more value to a system than less flexible units” like wind, according to EIA.

Conclusion

Congress is currently debating whether to revive the wind PTC in a tax extenders package. Sadly, the Senate Finance Committee rushed through the package with little debate and no opportunity for amendments, in a business-as-usual mentality too common in Washington. Congress should reject the PTC for a host of reasons: it raises Americans’ electric rates, destabilizes the power grid, enriches wealthy investors at the expense of taxpayers, and is central to President Obama’s EPA carbon regulations. Lawmakers that want to stand up for their constituents can co-sponsor H. R. 1901, the PTC Elimination Act, which AEA is including in the American Energy Scorecard.

One of the most compelling reasons to end this corporate welfare is because even the wind industry claims the industry is “strong”—taxpayers shouldn’t have to subsidize an industry that can compete on its own. If AWEA truly believes wind energy is a “success story,” then the industry should back up its words by letting go of the wind PTC.

[i] See Energy Information Administration, Electric Power Monthly, May 2015, Table 6.7.A. and 6.7.B., http://www.eia.gov/electricity/monthly/current_year/may2015.pdf

Congress Moves to Revive Obama’s Green Energy Piggybank

As the battle over the Senate’s objectionable tax extenders package continues, another fight over special interests and corporate welfare is building in Congress—namely, the reauthorization of the Export-Import (Ex-Im) Bank. After Ex-Im’s mandate expired on June 30, senators voted Sunday to revive the Bank.

The U.S. government runs the bank as its “official export credit agency.” It provides a way for the government to back up projects that the private sector is purportedly unwilling to undertake by shifting the risk onto taxpayers. Although Ex-Im currently cannot forge any new deals, it can still execute the $112 billion already in its portfolio.

By risking billions in taxpayer dollars on numerous questionable deals, the Obama administration has utilized the bank to promote its green energy agenda. The end result is significant damage to small businesses and American families.

Ex-Im Makes the Playing Field Unfair

While the bank is regularly touted as an effective way to fill in the gaps that the private sector leaves behind and counteract subsidies from foreign nations, The Wall Street Journal provides a compelling explanation of why this isn’t the case:

But Ex-Im has been subsidizing credit for so long that it’s impossible to know if those “gaps” would be filled if Ex-Im went away. Everything we know about markets says they largely would. Boeing, Ex-Im’s biggest beneficiary, has already said it can secure alternative financing. General Electric doesn’t lack for bankers. The Government Accountability Office (GAO) looked at Ex-Im in 2013 and said the bank “cannot answer the question of what would have happened without Ex-Im financing.” Maybe that’s because it didn’t want to.

A careful look at the numbers reveals the same conclusion. According to the Mercatus Center at George Mason University, Ex-Im backs only a small percentage of total U.S. exports and merely of a sliver of that is directed toward leveling the playing field for U.S. companies. Furthermore, its actions distort the market and actually make it harder for other U.S. companies to compete with subsidized ones.

And Ex-Im isn’t profitable. If the bank used fair-value instead of government accounting, its top programs would put taxpayers $2 billion in the red. Taxpayers have only taken on more risk as Ex-Im’s financial exposure increased by more than $36 billion over the last four years.

Ex-Im Supports Green Energy Cronyism

Due to Ex-Im’s mandate to support renewable energy, the bank provided billions in subsidies to projects that support the administration’s green energy agenda. Among these deals have been some spectacular failures. Here are a few examples:

  • Solyndra: Ex-Im approved a $10 million loan guarantee to a Belgian bank that financed the purchase of solar panels from Solyndra, a firm tied to the Obama administration that went bankrupt after leaving taxpayers on the hook for hundreds of millions of dollars.
  • Exports In Name Only: Ex-Im approved subsidies for a company to sell solar panels to itself and call it an “export,” a Washington Examiner investigation revealed. The bank issued $455.7 million in loan guarantees for a Canadian company, St. Clair Solar, to buy solar panels from First Solar. The problem: First Solar owns St. Clair—so First Solar shipped solar panels to itself, taxpayers subsidized the sale, and Ex-Im called it an “export.”
  • Double Dipping: As Mercatus points out, several large energy companies, some of which are foreign-owned, have received taxpayer subsidies from multiple federal programs in addition to handouts from Ex-Im. Examples include:
    • Gamesa, a Spanish wind firm: $1.3 billion total (including Ex-Im).
    • Areva, a French nuclear company: $2.1 billion.
    • Abengoa, a solar and biofuel conglomerate: $3 billion.

Further, the Ex-Im bank has been tied to Brazilian industrial magnate Marcelo Odebrecht, who was recently arrested on corruption charges. Diane Katz of The Heritage Foundation points out instances of Petrobras receiving Ex-Im handouts:

1998, for example, the Ex-Im board conferred “delegated authority” on Petrobras to issue up to $100 million in loan insurance and guarantees backed by the bank. Other deals include:

  • January/May 2001: $44 million in financing for Petrobras to purchase a steam turbine and generator from General Electric for a power plant project. Four months later, the loan amount was increased to $97 million.
  • October 2001: A $178 million loan to buy gas turbines and other equipment for a power plant project involving Petrobras and two other companies.
  • May 2005: A $39 million loan guarantee for equipment to build an oil production platform for Petrobras off the coast of Brazil.
  • 2009: A preliminary commitment of $2 billion to Petrobras as part of the bank’s “proactive outreach.” The financing was intended to develop offshore oil and gas reserves and upgrade its refining and distribution infrastructure. (This financing coincided with the Obama administration’s restrictions on offshore oil and gas projects.)
  • February 2010: A $308 million loan guarantee to a Petrobras subsidiary for oil and gas field development. Bank records show $100 million is still outstanding.
  • 2012: A $23 million loan guarantee to a Brazilian firm that will supply helicopter services to Petrobras for its deep-water drilling rigs.

While the Ex-Im bank was busy financing to the corruption-troubled Petrobras in Brazil, the Obama administration has made it more difficult for American oil companies to obtain offshore drilling permits in the U.S.

Conclusion

AEA has issued a key vote alert urging Congress to reject any attempt to reauthorize the Ex-Im Bank. Sadly, most of the Senate opted to side with President Obama’s green energy agenda over American families. Congress should prevent the extension of an agency that harms taxpayers by leaving them on the hook for costly green energy programs and other forms of corporate welfare.

Coalition to Congress: Support PTC Elimination Act

The American Energy Alliance joined this week with 19 other organizations in opposition to the wasteful wind Production Tax Credit (PTC). In a letter to the House of Representatives, the coalition encourages Members to support H.R. 1901, a bill introduced by Congressmen Marchant and Pompeo earlier this year to eliminate the wind PTC. Below is an excerpt from the letter:

Ending the wind PTC is an important initiative for several reasons. First, it is pro-taxpayer. Since it was created in 1992 taxpayers have sent billions of dollars to large multinational corporations in the wind industry. The last extension alone is estimated to cost taxpayers over $6 billion over the next ten years. Secondly, it is pro-consumer. Since wind is an unreliable source of energy it is often more expensive than other sources of energy. Eliminating the PTC allows the market to decide when wind power makes sense for consumers, and when it doesn’t.

The subsidy also kills jobs and stifles innovation. The PTC leads to net destruction of jobs by diverting capital away from projects that make the most financial sense and because wind is a more expensive form of electricity. For example, one study of Spain’s green energy subsidies found that for every 1 green job created, 2.2 jobs were eliminated elsewhere.

Finally, the wind PTC is an essential component of EPA’s regulatory agenda, including the looming carbon rule. EPA regulations are projected to shutter 90 GW of reliable energy by 2020. The EPA is pursuing aggressive regulations of existing power plants that amount to a federal takeover of the electricity system. One of the goals of this regulation is to shift electricity from reliable, low-cost sources like coal toward renewable energy like wind. Without the wind PTC, mandating renewables is a much more difficult task because the true cost of wind is not obscured by a large subsidy. Extending the wind PTC helps enable this federal takeover by the EPA.

The coalition letter will remain open for additional signers.

Click here to read the full coalition letter.

ICYMI: Mississippi Gov. Rejects EPA Rule

WASHINGTON–Yesterday, Mississippi Governor Phil Bryant joined a growing list of Governors who are exercising their right to reject the EPA’s carbon regulations, which would cripple America’s existing fleet of coal-fired power plants. In a letter to EPA Administrator McCarthy, Governor Bryant cited cost increases for his citizens and threats to grid reliability among his chief concerns with the sweeping regulation. The governor stated, “we do not see how it will be possible to reasonably develop a State Implementation Plan, given the burdensome requirements of EPA’s proposal in its current form.”
AEA President Thomas Pyle issued the following statement:

“We commend Governor Bryant for his bold stand to protect Mississippians. EPA’s carbon regulation will saddle Americans with higher energy costs by unnecessarily shutting down existing power plants only to be replaced with more expensive sources. State leaders should recognize that it is their right under the Clean Air Act to not submit a state plan and that the costs of doing EPA’s dirty work far outweigh any benefits. We encourage other governors to join the ranks of Governors Bryant, Pence, Walker, Abbott, and Fallin by opposing the EPA’s carbon regulation.”

Click here to read E&E Daily reporter Jean Chemnick’s story on the governor’s letter (subscription required). Click here to read 10 reasons why states should not submit a plan.

###

10 Reasons States Should Not Submit a State Plan

The EPA is set to finalize its “Clean Power Plan”, or Climate Rule, in the next few months. The proposed rule will dramatically harm American families and businesses with little to no benefits to show for it—environmental or otherwise. Many also consider the proposed rule to be a federal takeover of the electricity system, traditionally an area left to the states to regulate. Now, states must decide how they should respond to best defend their sovereignty and protect their residents. Primarily, states are deciding whether to submit a state plan or exercise their rights under the Clean Air Act. We want to be clear: we are not urging states to do something illegal. It is perfectly legal and contemplated by the Clean Air Act that states are not required to submit state plans. States should not submit a plan—they have nothing to gain, but much to lose.

Before we explain the 10 reasons why states should not submit a plan, we first need to explain that these regulations are designed to drive up the cost of electricity. That is the point. Closing low-cost, reliable coal-fired power plants and replacing them with anything—even low-cost combined cycle natural gas plants—will still drive up electricity rates. The rates impact gets much worse when trying to replace coal with wind, because wind plus the necessary natural gas backup will produce electricity that is, on average, three times as expensive as the average existing coal-fired power plants.[1] We believe that policies designed to drive up electricity rates are incredibly harmful to America, and that’s why we advocate for not submitting a state plan.

  1. State resistance is the best chance to either delay or force the rule to be withdrawn –The EPA does not have the resources to administer federal plans for several states. If a handful of states opt to not submit a state plan, this will put the EPA in a tenuous position. Moreover, without states being complicit in the federal takeover, the EPA will have to determine how to reach their desired emission goals within the confines of existing power plants. This means removing substantial available baseload power that keeps the lights on for most families and businesses. If EPA were to do this, it would threaten the reliability of the electric grid and could impose rolling blackouts or brownouts across large swaths of the country. This is not politically viable. Instead, if enough states do not submit plans, the EPA will be forced to reconsider their emission targets and possibly withdraw the rule. Worst case, this gives the legal challenge a chance to play out while the EPA determines how to proceed.
  1. State plans undermine state authority with no actual flexibility – Traditional state prerogatives over power production, distribution, and consumption within the state could be permanently transferred to the federal government if state plans are submitted and approved by the EPA. As former EPA General Counsel Roger Martella has noted in legal analyses, this extends beyond “core compliance responsibilities of State air regulators and utility commissions” and includes “details as minor as emissions monitoring and verifications systems.” This is accompanied with virtually no flexibility to adjust energy policy in response to the changing needs of a state. Throwing all appearance of cooperative federalism out the window, the EPA made this point clear several times in its notes associated with the proposed rule.[2]
  1. Submitting a state plan is not the end of the story; you could still end up with a federal plan – Some say submitting a state plan will keep the power at the state level and minimize the pain. EPA likes to make the same argument, often talking about “state flexibility.” But the history of the Obama Administration has made it clear that submission of a state plan is not the end of the story. On 52 occasions, the Obama administration has taken state plans and turned them into federal plans.[3] During the two Bush administrations and the Clinton administration, this only happened 7 times. The EPA will get the outcome they want no matter what a state does.
  1. State plans undermine legal challenges and open the door for future federal takeovers – EPA has the authority under the Clean Air Act to regulate pollution emissions. This regulation goes far beyond regulating actual emissions of carbon dioxide, but into the use of electricity and which power plants should be turned on to meet demand. The EPA is making a big leap in its regulatory authority by going beyond the power plant (“outside the fence”) and claiming it can regulate any entity that emits carbon dioxide under this rule on carbon dioxide emissions for power plants. States who submit plans outlining emission cuts beyond the fence line arguably consent to this transfer of power. If successful at using this framework to take over the electricity system, EPA will then have precedent to use this new regulatory authority in other sectors of the economy traditionally left to states (i.e. refining, manufacturing). This concession runs counter to many states’ anticipated lawsuit challenging this federal overreach. If history is any guide, once power is transferred, it rarely returns to the state.
  1. Your state plan will quickly become the “Sierra Club Plan” – It is interesting that anti-energy special interests want states to submit plans. Groups like Sierra Club and NRDC believe state plans will help environmental groups achieve their goals. Unless the utilities and environmental groups have the same goals, both the utilities and environmental groups cannot be right. Environmental special interest groups like state plans because it will give them leverage through legal action against the states. According to Dan Byers at the Chamber of Commerce, “The Sierra Club caught EPA’s hint, and has made realization of [state implementation plan] lawsuit exposure a priority.” They have openly advocated for state plans, indicating they will bring citizen suits to enforce state plans as they see fit with little to no flexibility or consideration of unique state needs. Under this scenario, state plans lose all semblance of state control and become beholden to anti-energy special interests.
  1. A state plan will expose businesses and private actors in your state to legal action –Upon submission of a state plan, citizen suits are likely to be brought to compel enforcement of carbon dioxide emission reductions promised by the state. Litigious environmental groups routinely exploit the “sue and settle” process to compel enforcement on a wide range of issues. Since most state plans will seek to count reductions from a combination of sources, including private offices, residences, and government buildings, many private parties could find themselves subject to enforcement actions brought by the EPA and anti-energy special interests. As Martella explains, a state plan “could expose States and these third parties to legal action under the citizen suit provisions of the [Clean Air Act].”[4] Even worse, states and private parties who find themselves in the EPA or Sierra Club’s crosshairs have no flexibility to deviate from EPA’s emission limits even if they become “unworkable, ineffective, or too costly,” according to Martella.[5]
  1. State plans lock states into the EPA’s current approach and the imposition of a federal plan does not foreclose states from later submitting a state plan – Implementation of the rule is almost assured if state plans are submitted. Citizen suits and EPA enforcement actions noted above will guarantee the state is locked into compliance. Contrarily, exercising the option afforded to states under the Clean Air Act to not submit a state plan does not prevent a state from submitting one down the road if circumstances change, legal challenges are resolved, or even the reception of a federal plan appears imminent, certain, and more painful. None of these factors will be at play until mid-2017 at the earliest. With enough opposition, the next Administration will be forced to dramatically alter or withdraw the rule entirely.
  1. EPA needs states to be complicit – The regulatory framework is intentionally designed to get states to take the lead so the EPA’s hands do not get as dirty. The Climate Rule will make energy more expensive, harm economic growth, and destabilize the power grid.[6] The less blame that can be placed at the EPA’s doorstep, the more likely this federal takeover is to succeed. This is similar to Obamacare, where the feds wanted states to set up their own health insurance exchanges so they would own some of the fallout for the failure.
  1. A state plan will render a legal victory irrelevant – Lawsuits against the EPA regarding this rule are expected, but as we recently witnessed with the Supreme Court’s ruling on the Mercury rule, we can win the legal battle and lose the policy war. Moving forward with implementation before full legal resolution all but guarantees that the damage will be done by the time the Supreme Court hears the case. Sadly, this plays right into EPA’s “regulate-now-determine-authority-later” approach. Just days before the Mercury decision, EPA Administrator Gina McCarthy reinforced this point while on the Bill Maher show: “We think we’re going to win because we did a great job on it. But even if we don’t, it was three years ago. Most of them are already in compliance, investments have been made, and we’ll catch up.”[7] About 40 gigawatts of generating capacity closed because of the Mercury rule that the Supreme Court shot down.[8] We should not repeat that.
  1. States can choose not to submit a state plan when a rule is too costly, complex, and ambiguous – As we’ve witnessed with previous rules out of the EPA, states can and do refuse to submit state plans when the rule presents serious technical and economic challenges. For example, 24 states refused to submit Good Neighbor SIPs (State Implementation Plans) under the Cross-State Air Pollution Rule (CSAPR). Missouri DNR’s justification for not submitting a SIP captures the reasoning well: “Typically we’ve relied on a FIP [Federal Implementation Plan] to address Missouri’s interstate transport obligations for ozone and particulate matter (e.g., CAIR & CSAPR). It’s challenging to rely on options other than a FIP because two years to complete the extensive technical evaluation, develop a SIP and get EPA approval is very aggressive.”  This is on a two-year timeline for a SIP, as compared to a one-year timeline for state plans under the Climate Rule, which have a broader scope. Given the legal uncertainty around the Climate Rule and the change in Administrations in 2017, it would be wise for states to exercise their legal right and refuse to submit a state plan.

Once EPA finalizes its rule this summer, states will face huge pressure to submit plans. States should keep three things in mind: 1) not submitting a state plan is your right and has historical precedent, 2) there is no benefit to submitting a state plan now because EPA can override state plans it does not approve of and 3) it is never too late to submit a state plan (states have a right to submit a plan even after a federal plan is imposed). If enough states resist, the current administration will run out of time to impose federal plans and the task will fall to the next administration. In short, waiting costs you nothing, but there are certain costs to moving forward.


 

[1] See Tom Stacy and George Taylor, “What is the True Cost of Electricity?,” Institute for Energy Research, June 30, 2015, http://instituteforenergyresearch.org/analysis/what-is-the-true-cost-of-electricity/

[2] See Sidley Austin LLP, “Potential Enforcement Implications and Liabilities Associated with EPA’s Proposed Greenhouse Gas ESPS Rule,”

[3] See William Yeatman, “EPA’s 52nd Takeover of State Regulatory Program Provides Perfect Segue to New Paper on Cooperative Federalism in the Obama Age,” September 4, 2014, http://www.globalwarming.org/2014/09/04/epas-52nd-takeover-of-state-regulatory-program-provides-perfect-segue-to-new-paper-on-cooperative-federalism-in-the-obama-age/

[4] Roger Martella, “Potential Enforcement Implications and Liabilities Associated withEPA’s Proposed Greenhouse Gas ESPS Rule,” p. 1, http://www.energyxxi.org/sites/default/files/ESPS%20white%20paper%206.17.15.pdf

[5] Martella, p. 3.

[6] See IER, “EPA’s Power Plant Rule to Cost At Least $366 Billion,” October 23, 2014, http://instituteforenergyresearch.org/analysis/epas-power-plant-rule-cost-least-366-billion/

[7] See Timothy Cama and Lydia Wheeler, “Supreme Court overturns landmark EPA air pollution rule,” June 29, 2015, http://thehill.com/policy/energy-environment/246423-supreme-court-overturns-epa-air-pollution-rule

[8] See Energy Information Administration, Analysis of the Impacts of the Clean Power Plan, May 22, 2015, http://www.eia.gov/analysis/requests/powerplants/cleanplan/

 

Senate Tax Extenders Nightmare

With little debate and no opportunity for amendments, the “world’s greatest deliberative body” this week rushed a package of tax breaks through the Senate Finance Committee. The bill, called a tax extenders package, is an affront to the American taxpayer. Only Senators Toomey (R-PA), Coats (R-IN), and Enzi (R-WY) opposed the package. They should be commended for their bold leadership, especially in light of the failure of so many of their colleagues.

In an unfortunate sign of business as usual in Washington, the energy section is loaded with special interest giveaways to large corporations. Here is a list of the most objectionable energy related giveaways:

  • Two year extension of credits to facilities producing energy from certain renewable resources including the Wind Production Tax Credit ($10.49 billion)
  • Two year extension of biodiesel and renewable diesel credits ($2.56 billion)
  • Two year extension of credit for nonbusiness energy property ($1.387 billion)
  • Two year extension of excise tax credits and payment provisions for alternative fuels ($918 million)
  • Three year extension of credits for energy-efficient new homes ($760 million)
  • Two year extension of energy efficient commercial buildings deduction ($315 million)
  • Two year extension of credits for alternative fuel vehicle refueling property ($112 million)
  • Two year extension of second generation biofuel producer credits ($45 million)
  • Two year extension of credits for fuel cell vehicles ($6 million)
  • One year extension of credits for electric motorcycles ($4 million)
  • Three year extension of special allowance for second generation biofuel plant property ($2 million)

These provisions alone will cost the American taxpayer an estimated $16.5 billion over the next ten years, which is 17.33% of the entire tax package. More importantly, these tax subsidies will benefit a narrow set of special interests at the expense of the average American.

The biggest chunk of this energy section ($10.49 billion or 11% of the entire package) includes the wind Production Tax Credit (PTC). The PTC is an important component of President Obama’s carbon regulations for existing power plants, which would effectively lead to a federal takeover of the electricity system. While President Obama occupies the White House, it has proved difficult for the Republican-led Congress to pass meaningful legislation to stop his regulatory agenda. Ending the wind PTC is one way that Congress can fight back.

The good news is that since the PTC is currently expired, Congress can strike an important blow against the implementation of the Obama administration’s carbon regulations by simply doing nothing. Disappointingly, instead of working to stop the president’s carbon agenda, the Senate Finance Committee just advanced it. Their vote for the PTC was essentially a vote for the President’s carbon regulations, which each Republican on the committee has expressed opposition to in the past. Because–as even the White House acknowledges–the PTC is critical to implementing the President’s agenda, the American Energy Alliance will key vote against this tax extenders package if it reaches the Senate floor.

The Senate Finance Committee’s abject failure stands in stark contrast to the leadership on display from a number of their colleagues in the previous week. Senators Flake, Manchin, Alexander, McCain, Capito, Lee, Risch, and Lankford wrote to Chairman Hatch and Ranking Member Wyden asking them to “refrain from resuscitating the expired wind production tax credit (PTC) or modifying the planned phase out of the renewable energy investment tax credit (ITC) in 2016.” The American Energy Alliance applauds these Senators for fighting to protect their constituents from the harmful effects of these subsidies. We especially applaud Senators Toomey, Enzi, and Coats for standing up for the taxpayers in their states by voting against the bill in committee.

Bradley Op-Ed: Obama Goes Scorched Earth on Oil and Gas

In a piece for Real Clear Energy, Dr. Robert Bradley, the founder and CEO of the Institute for Energy Research, examined the Obama administration’s misguided energy and climate policy. As the clock runs out on President Obama’s term, administration officials are rushing to impose additional rules on the oil and natural gas industry.

As global demand for fossil fuels grows, the U.S. has become the world leader in oil and natural gas production. In spite of federal policies, oil and natural gas have been boons to the U.S. economy, and advanced technologies have spurred expanding production on private and state lands. Increased oil production has coincided with high levels of economic growth and job creation in states with favorable environments for drilling, such as North Dakota, Pennsylvania, and Colorado.

Nevertheless, the administration is ramming through a climate agenda that is imposing “counterproductive, top-down rules” on these affordable and reliable energy sources, according to Dr. Bradley. Below is an excerpt from the article where Dr. Bradley details the accumulation of these harmful regulations:

By proposing new methane emission regulations, for example, the administration will hike drilling costs for natural gas. Even the EPA’s own data shows that methane emissions already have fallen dramatically due to the industry’s voluntary actions and rules already on the books. 

The administration also has finalized new hydraulic fracturing regulations for wells drilled on public lands despite a new EPA report that found “no widespread, systemic impacts to drinking water sources.” 

Of course, the administration’s fracking rules will not apply to this White House’s new prohibitions on nearly 300 million acres of federal land. The Arctic National Wildlife Refuge, portions of the Arctic Ocean, and large tracts of several Western states are among the parcels the White House is preserving “for future generations.” 

Moreover, the offshore leasing plan for 2017–2022, which the Interior Department hopes to complete soon, does not include leases in the energy-rich eastern Gulf of Mexico or along the Pacific Coast. Instead it proposes to allow the industry to pick over bones in the previously explored and developed western Gulf and possibly in a small portion of the Atlantic Outer Continental Shelf.

There also are new offshore drilling rules, including a regulation requiring Arctic drillers to have two rigs on hand—one to drill the well and a backup rig in case a relief well is needed. This, despite a National Petroleum Council report calling on the administration to encourage Alaskan offshore drilling now or become more dependent on foreign oil in the future.

All of these regulations, including tougher ground-level ozone standards, are moving forward in lock-step with the regulations on carbon dioxide from power plants. This drastic, controversial proposal combined with other regulations will shutter scores of coal-fired power plants and reduce electrical power by as much as 130 gigawatts, enough to serve the residential needs of more than 100 million Americans.

All of these separate actions contribute to a climate agenda that will make energy more expensive and life harder for millions of American families.

Click here to read the rest of Dr. Bradley’s article.