Final Mercury Standards for Power Plants

As promised the other day (see here), EPA has finalized new regulations on mercury emissions from fossil fuel-fired power plants. The final rule in its entirety is here, and the regulatory impact statement, which includes the highly favorable cost-benefit analysis is here. For those who don't want to work so hard, a brief summary of the the rule is here.

EPA Finally Finalizes Air Toxics Rule for Mercury

Not so much a "job-killing" regulation as a long-overdue protection (developed under court order) that finally will prevent utilities from committing involuntary manslaughter 17,000 times per year (not to mention hundreds of thousands of non-fatal assaults on public health).

According to this Washington Post story (the finalized rule is not yet available online), the new rule will force utilities, which are the largest emitters of air toxics in the US, to install scrubbers to remove emissions of mercury and soot, which will cost them $10.6 billion between now and 2016, but result in estimated mortality and morbidity cost savings of between $59 billion and $140 billion per year.

As soon as the final rule and regulatory impact assessment are available, I will link to them.

Washington Environmental Council v. Sturdevant

Yesterday, Federal District Court Judge Marsha J. Pechman ruled (here) that Washington State agencies must  promulgate technology-based standards for greenhouse gas emissions from oil refineries in the state. The decision is based on a highly technical (but not convoluted) reading of state regulations under the federal Clean Air Act (CAA), according to which the state environmental agency must set RACT (reasonably achievable control technology) standards  for certain categories of existing stationary sources (in this case oil refineries) pursuant to their State Implementation Plan (SIP).

The most interesting aspect of this opinion to my mind is that SIPs are a compliance tool for attaining (or maintaining) national ambient air quality standards (NAAQSs), which are set for criteria pollutants. To date, the EPA has not established criteria documents for greenhouse gases, which would lead to the promulgation of NAAQSs for them. Yet, the federal court did not hesitate to require Washington state agencies to include regulations in their SIPs for GHGs. As Judge Pechman notes in her ruling, nothing in the SIP provision (sec. 110) of the CAA restricts the state from regulating air pollutants beyond federal requirements.  So long as the SIP "meets all the applicable requirements," EPA must approve it, even if it is more stringent than federal law requires. And it remains enforceable by both federal and state courts. In this case, the state's RACT regulations were broader than federal requirements in applying not only to criteria pollutants but to "all air contaminants." A 2009 executive order (09-05, May 21, 2005) by Washington Governor Christine Gregoire specifies that "greenhouse gases are air contaminants."

Presumably the State of Washington could easily avoid the court's order in this case simply by amending the language of its current RACT regulation to explicitly exclude GHGs. However, it may be politically difficult to for it to do so, given the 2009 executive order.

This is the first case (to my knowledge) where environmental groups have succeeding in regulating GHG emissions from existing (as opposed to new or substantially modified) stationary sources of greenhouse gas emissions under the CAA. The EPA has studiously avoided bringing GHGs under the general ambit of Title I of the CAA, which would require an endangerment finding (under sec. 108, separate from the endangerment finding EPA made under Title II for auto emissions of GHGs), issuing criteria documents, and promulgating NAAQSs (under sec. 109). Even in the absence of NAAQSs, emissions from new and substantially modified sources are subject to federal regulation because of  broad language in the relevant sections of the statute. However, "existing" sources are not subject to direct federal regulation under the act (broadly speaking); rather, they are regulated by the states, pursuant to sec. 110 SIPs. The EPA must approve SIPs that meet certain federal requirements relating to attainment (or movement toward attainment) of NAAQSs. This case shows how language in state regulations, if it is sufficiently broad, can bring SIPs into play in regulating GHGs from existing stationary sources with technology-based standards.

Who (or What) Killed the Obama Ozone Rule?

In today's New York Times (here), John Broder takes us inside the White House to explore the political machinations that resulted in the demise of the EPA's proposed ozone standards under the Clean Air Act. I have my doubts about certain aspects of the story, including the insinuation that OIRA chief Cass Sunstein was somehow out to "make his mark" by stomping down the EPA rule. However, Broder's overall story does strongly support an argument I make in my new paper on the political uses and abuses of cost-benefit analysis (CBA) (here), that the Obama Administration's CBA for its ozone rule played a significant political role in its demise. The Obama standard would have generated fewer net social benefits (on median estimates) than the Bush standard it would have replaced. It was, relatively speaking, less efficient. Thus, it would have been politically difficult to justify, especially heading into an election year. No doubt other, purely political considerations also played a part in the President's decision, but the fact that the CBA played any significant role is noteworthy, especially considering the Clean Air Act's express prohibition on cost-considerations in setting  air quality standards. Simply put, as I argue in my new paper, cost considerations matter even when the law says they cannot.

When is Command-and-Control Efficient? Evidence from the Field

"Command-and-control" is a derisive label usually applied (mainly by economists) to traditional forms of environmental regulation including technology-based "design standards" and "performance standards" (which are non-tradable quota limits). In most of the environmental instrument-choice literature, "command-and-control" is considered generally inefficient both nominally and relative to so-called "economic instruments,"* which include effluent taxes and cap-and-trade (a performance standard with trading of pollution rights or allowances).

More than a decade ago, Peter Grossman and I published a long article (a pre-publication version is here), with an unusually long title, in the Wisconsin Law Review about the limitations of cap-and-trade and effluent taxes as substitutes for traditional forms of quantity-based regulations.** In “When is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection,” we explained why, as a matter of both theory and historical experience, traditional forms of environmental regulation have sometimes been, and sometimes remain, more efficient and effective than so-called “economic instruments” mainly because of monitoring and enforcement cost differentials. In at least some cases, command-and-control regulations, particularly technology-based standards, can have administrative cost advantages that offset, or more than offset, the admitted compliance-cost advantages of cap-and-trade or effluent taxes.

One important implication of our analysis in that article is that compliance costs are not the sole concern in environmental protection (although they are often treated as such by economists*). Rather, society should be concerned with minimizing the total costs of environmental protection, which are the sum of compliance costs, administrative (monitoring and enforcement) costs, and residual pollution costs. See, e.g., Peter Z. Grossman and Daniel H. Cole, "Toward a Total Cost Approach to Environmental Instrument Choice," in T. Swanson & R. Zerbe (eds), An Introduction to the Law and Economics of Environmental Policy: Issues in Institutional Design, 20 Research in Law & Economics 225 (2002) (see here). Moreover, it is a mistake to presume that minimizing compliance costs necessarily minimizes total costs, as if differential administrative or residual pollution costs are either insignificant or inevitably move in the same direction as compliance costs.

In the years since we published our Wisconsin Law Review article, it has been cited hundreds of times (more often by legal scholars than by economists). To date, our analysis and findings have not been substantially challenged. Now comes a new article in the October 2011 issue of The American Economic Review providing further empirical support for sometimes preferring traditional forms of regulations over "economic instruments."

In “Clearing the Air? The Effects of Gasoline Content Regulation on Air Quality,” co-authors Maxmiliian Auffhammer and Ryan Kellogg, analyze empirical data on national and state-level (California) gasoline-content regulations, and find that the more flexible federal approach has virtually zero cost-effectiveness (costs of compliance were minimized but at the price of completely nullifying the environmental effect of the regulation), but California's more stringent set of traditional regulations have reduced substantially emissions that contribute to low-level ozone pollution, albeit at higher cost of compliance (but providing substantial net social benefits). Here is their abstract:

This paper examines whether US gasoline content regulations, which impose substantial costs on consumers, have successfully reduced ozone pollution. We take advantage of spatial and temporal variation in the regulations' implementation to show that federal gasoline standards, which allow refiners flexibility in choosing a compliance mechanism, did not improve air quality. This outcome occurred because minimizing the cost of compliance does not reduce emissions of those compounds most prone to forming ozone. In California, however, we find that precisely targeted, inflexible regulations requiring the removal of particularly harmful compounds significantly improved air quality.

The empirical information and conclusions of Aufhammer and Kellogg's article further support Cole and Grossman's conclusion that command-and-control regulations are sometimes (but certainly not always) more effective and efficient than market-based mechanisms. Where our analysis focused on differential administrative costs that sometimes favor design standards, Aufhammer and Kellogg have a somewhat different concern, that more flexible regulatory mechanisms, by focusing myopically on the minimization of compliance costs, might fail to achieve emissions reductions necessary to achieve the (exogenous) environmental goal. For reasons that should be obvious, a regulation with zero cost-effectiveness (purchasing at some positive cost zero additional increments of environmental protection) cannot be considered efficient, let alone more efficient than another regulation, albeit one with higher compliance costs, but which actually furthers the environmental protection goal (assuming the goal itself is economically sensible).

Aufhammer and Kellogg's empirical analysis provides a welcome reminder that social scientists, legal scholars, and policy analysts should not neglect or underestimate the potential of traditional command-and-control instruments in the environmental policy mix.

---------------------------------

*In effect, all forms of regulation are economic instruments. Even technology-based standards function by raising the costs of polluting activity, which shifts the supply curve outward and (assuming some price elasticity of demand) reduces the rate of demand for pollution-intensive goods. What economists really mean when they use the phrase "economic instruments" is "economically more efficient instruments." This presumes that the compliance cost advantage of cap-and-trade and effluent taxes means that they necessarily have lower total costs than command-and-control instruments. As noted above, this presumption is unwarranted.

** Unfortunately the full, final published versions of the three articles cited in this post are not freely downloadable on the Web. Each, however, is available behind a pay-wall.

"Toward a Political-Economy of Cost-Benefit Analysis"

My new working paper of that title is available for download here. Actually, it's not a brand new paper, but a substantially revised and refocused version of a working paper I first posted a couple of years ago, and recently pulled out of mothballs. Here is the abstract:

This is a substantially revised, refocused, and updated version of an earlier draft paper, exploring the significant role Cost-Benefit Analysis (CBA) plays in  facilitating or impeding legislative and regulatory policy decisions. The paper centers around three case studies of CBAs EPA prepared for: (1) Clinton Administration changes to Clean Air Act air quality standards for ozone and particulate matter; (2) President Obama's recent decision to suspend EPA's reconsideration of the Bush Administration's air quality standard for ozone; and (3) the George W. Bush Administration's "Clear Skies" legislative initiative. The first two case studies demonstrate, between them, how well-constructed CBAs can facilitate social welfare-enhancing and impede welfare-reducing rules, even in cases where explicit consideration of costs is legally prohibited. The third case study tells a more complex story of how CBAs can be manipulated either to promote welfare-reducing regulations or impede welfare-enhancing regulations. When that happens, however, the virtuous transparency of CBAs renders those efforts liable to discovery and disclosure, as in the case of the Bush Administration's failed "Clear Skies" initiative. The paper concludes with an assessment of implications of the case studies for our understanding of the role of RCBA in political (both legislative and regulatory) processes, and with a call for more qualitative and quantitative empirical research on the use and abuse of RCBA as a political tool. 

The Indy Star Rarely Misses An Opportunity to Create a Misimpression

A headline from today's edition (see here): "House blocks EPA on coal ash." In case anyone was confused by this, allow me to clarify. The House of Representatives voted to block EPA's proposal to increase regulation of coal ash, which is a by-product of electricity generation from coal containing toxic chemicals. However, the House vote cannot, by itself, block EPA's regulation. That would require a corresponding vote in the Senate, plus the President's signature (or a subsequent super-majority vote in Congress to override a presidential veto). So, the bottom line is that, contrary to the Star's headline, the House has not blocked the new EPA rule.

Regulatory Cost-Benefit Analysis and Collective Action

A new, expanded, and improved draft of my paper of that title can be downloaded from SSRN. Here is the abstract:

This updated draft paper explores the significant role Regulatory Cost-Benefit Analysis (RCBA) plays in facilitating or impeding collective action. Through case studies, the paper shows that well-constructed RCBAs have (1) facilitated collective action (including in cases where explicit consideration of costs is legally prohibited) by muting political opposition; and (2) helped to obstruct welfare-reducing rules from being promulgated. RCBAs can of course be manipulated to obstruct social welfare-improving collective action or to promote inefficient policies. However, the fact that RCBAs require transparency makes those efforts liable to discovery and disclosure, as in the case of the Bush Administration's failed "Clear Skies" initiative. The paper concludes with an assessment of implications of the case studies for our understanding of the role of RCBA in the regulatory process, and with a call for more qualitative and quantitative empirical research on the use and abuse of RCBA as a political tool in legislative and regulatory processes.

Another Self-Inflicted Wound At Obama's EPA

EPA's own Inspector General (IG) has published a report criticizing the process by which EPA made its endangerment finding for greenhouse gases (GHGs), which is a prerequisite for regulating GHGs under the Clean Air Act. The gist of the IG's complaint was that EPA's process for reviewing the climate science was procedurally flawed, even though EPA relied primarily on scientific findings of the National Academy of Sciences.

Some of the IG's complaints appear minor, even trivial, such as the fact that one person on the 12-member peer-review board of scientists was an EPA employee. But that hardly excuses the procedural shortcuts. When it comes to a hot-button political issue like regulating GHGs to mitigate climate change, failing to dot the i's and cross the t's is like handing a loaded gun to Senator James Inhofe, the Republican presidential candidates (excluding John Huntsman), and other climate-change ignoramuses, who will gladly use it to take pot shots at the agency.

EPA officials and environmental groups have been  quick to defend the endangerment finding on the merits, and no doubt that they are on solid ground (although the Clean Air Act remains a relatively poor vehicle for regulating GHGs). But that is beside the point. The agency has, by its procedural negligence, invited a political fight it did not need and might not win.

Obama and Ozone

According to reports in the New York Times (here) and other sources, President Obama is forcing EPA to back down from proposed regulations that would tighten up national air quality standards for ground-level ozone, which is a precursor to smog, much to the consternation of environmentalists. The EPA already had tightened up the ozone standard in March 2008, during the waning days of the Bush Administration, from 0.084 parts per million (ppm) to 0.075 ppm. Shortly after taking office, the Obama Administration announced a reconsideration of the ozone standard based on its belief that the science supported an even more stringent standard than the one the Bush Administration adopted.

The legal basis for the Obama Administration's reconsideration of the Bush Administration's standard is clear. The Clean Air Act requires EPA to set national ambient air quality standards (NAAQSs) to protect the health of the most vulnerable sub-populations in the US, based solely on scientific evidence (Clean Air Act, sec. 109, 42 USC sec. 7409). It cannot consider cost. This understanding of the Clean Air Act's plain language has been consistent since 1970. The US Supreme Court reconfirmed it in Whitman v. American Trucking Assc., 541 US 457 (2001), despite an amicus brief filed by several prominent economists arguing that the agency should not be prohibited from considering costs in deciding whether to adopt or amend NAAQSs.

As a result of its reconsideration of the Bush Administration standard, the Obama EPA proposed (here) reducing the primary NAAQS from 0.075 ppm to somewhere between 0.060 ppm and 0.070 ppm (along with a separate secondary NAAQS based on seasonal fluctuations in emissions). One unusual feature of this proposed rule was its failure to specify a precise numeric target for the ozone NAAQS, which left substantial uncertainty about where on the range between 0.060 and 0.070 it would finally come down. Even if we take it as given that the science supports a reduction in ambient concentration levels, it is difficult to understand why the EPA could not settle on a single number in its proposed regulation.

As noted earlier, EPA is legally barred from considering costs in setting NAAQSs. Nevertheless, it is required both by statute (the 1995 Unfunded Mandates Reform Act) and several Executive Orders to undertake regulatory impact analyses (RIAs) of all major proposed regulations. Thus, the EPA has to prepare cost-benefit analyses for new and revised NAAQSs, even though it is supposed to ignore them when actually setting the standards.

As I argue in a working paper, which I am currently in the process of revising (an older version can be viewed here), it is ludicrous to suppose that EPA does not consider the cost calculations it is legally required to undertake in setting or revising NAAQSs. The Clean Air Act requires EPA to considering revising NAAQSs for all regulated ("criteria") pollutants, including Ozone, every 5 years. If EPA only relied on the best science, it would almost certainly increase the stringency of its regulations every five years. The fact that NAAQS revisions are the exception rather than the rule since 1970, indicates that cost does play a role, if only informally, in EPA's decision-making. (I take this to be a good thing, though many of my fellow environmental law professors would no doubt disagree. It would be even better, in my estimation, if Congress allowed EPA to consider costs formally.)

In the case of the reconsidered Bush Administration revisions to the NAAQSs for ozone, the Obama EPA's supplemental RIA estimates that the Bush Administration's rule, revising the ozone standard to 0.075 ppm, would yield median net social benefits of $3.1 billion, as compared with $1.4 billion for a standard of 0.070 ppm, $0.7 billion for 0.065 ppm, and -4.8 billion for 0.060 ppm (all discounted at a constant rate of 7%). The figure below (from page S1-8 of the RIA) shows the range of costs and benefits under alternative standards. The bottom line is that the Bush Administration's selection of a 0.075 ppm yields higher net social benefits than any of the alternative standards the Obama Administration was considering.

The question that naturally arises, of course, is whether President Obama's decision to retreat from reconsideration of the Bush Administration's ozone standard is related at all (and, if so, to what extent) to the regulatory impact analysis. It would be naive to suppose that the decision had nothing to do with the cost-benefit analysis, especially given the political stakes. As the country approaches a presidential election year with a very shaky (to say the least) economy and high employment, President Obama would find it difficult and highly inconvenient to defend regulatory choices that are not significantly and obviously social-welfare maximizing. The EPA's RIA indicates that a shift from the Bush Administration's 0.075 ppm standard for ozone to a standard somewhere between 0.060 and 0.070 ppm would not significantly nor obviously enhance social welfare.

Of course, the Obama Administration cannot explicitly defend its decision to abandon its proposed tightening of the ozone NAAQs without violating the clear terms of the Clean Air Act (although Dan Farber, at Legal Planet, argues plausibly that the timing of the Obama proposal, prior to the next mandatory 5-year review in 2013, might exempt it from the Clean Air Act's prohibition on consideration of costs). However, if I am right that cost considerations, as well as practical politics, always play a role regardless of the letter of the law, then it seems much more likely than not that Obama's decision was substantially determined by EPA's RIA. Just as a positive cost-benefit analysis can insulate the EPA from negative political fall-out from new or revised regulations, so a negative cost-benefit analysis can create a political obstruction to regulation, even when costs are not supposed to count.

Between now and November 2012, we should not expect to see any new regulations emerging from the Obama Administration, including the EPA, that do not clearly and overwhelmingly pass a cost-benefit test, regardless of any legal constraints on the consideration of costs.

A FURTHER THOUGHT: The Obama Administration's withdrawal of the ozone NAAQSs from reconsideration opens the door for possible litigation, in which environmental plaintiffs would challenge the Bush Administration's decision to reset the primary NAAQS at 0.075 instead of some lower level. The scientific basis for that lawsuit would be the same as the scientific basis for the Obama Administration's reconsideration of the rule. If they prevail, the court would likely order the Obama Administration to re-open its reconsideration of the rule, which it could then do without having to take as much (if any) political heat for the results.

Indeed, this debacle over the ozone standards is yet another example of political ineptness by the Obama Administration. Lawsuits against the Bush standards already were filed when the Obama Administration took office. Instead of preempting those lawsuits by announcing that it would voluntarily reconsider the standards, the Administration probably should have let the lawsuits proceed before acting.

The Fallacious Republican Attacks on the EPA

Dan Farber has an excellent post at Legal Planet (here) explaining (a) why the current House of Representatives is the most anti-environmental-protection ever and (b) how the anti-EPA views of many House Republicans are faith-based, rather than fact-based. The fact of the matter is that environmental regulation in general has very little impact either on overall levels of economic growth or jobs. The only saving grace is that none of the House bills Dan mentions seems likely to become law any time soon.

When Is an Executive Order Not an Order?

When it merely asks agencies to comply.

Traditionally, presidents have operated on the assumption that they have direct control, via Executive Orders, over the activities of Executive Branch agencies, but not "independent" regulatory agencies established by Congress outside the Executive Branch of government. A few years ago, Bob Hahn and Cass Sunstein, the later of whom is currently head of the Office or Information Regulatory Affairs in President Obama's Office of Management and Budget, wrote a paper (published in 2002 in the Pennsylvania Law Review) in which they argued that the President's could, by Executive Order, bind independent as well as Executive Branch agencies. Today, Mr. Sunstein took a step in the direction of testing  that argument, when the OMB published Executive Order No. 13579 on "Regulatory and Independent Regulatory Agencies."

 EO 13579 orders that independent agencies should promote the goal of producing a regulatory system that protects "public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation." The quoted language is from EO 13,563, which the OMB applied to Executive Branch agencies earlier this year. The new EO says that independent agencies should comply with the requirements of that earlier EO "to the extent permitted by law," and should produce a plan to do so within 120 days.

As a matter of principle, I support efforts to improve regulatory (and de-regulatory) decision making. But the new EO raises important interpretive questions, which, depending on how they are settled, could generate constitutional issues for judicial review.

Using words like "should" suggests that the White House is urging, but not requiring, the cooperation of independent agencies. On the other hand, an EO is by definition an "order." So, the question is, does the EO really impose obligations on independent agencies? The only way we'll find out, I suppose, is if one or more independent agencies declines to do what the new EO says they should do. If that happens, and the OMB tries to enforce the provisions against them, a constitutional separation-of-powers issue would arise for the courts to resolve.

UPDATE: Michael Livermore sent me the President's cover letter accompanying EO  13759, which would clarifies that the EO is not, in fact, obligatory on independent agencies. After noting what Executive  Branch agencies are "required" to do, the President goes on to write: "With full respect for the independence of your agencies, I am asking you today to join in this review and produce your own plans to reassess and streamline regulations" (emphasis added). Apparently, then, the new Executive Order is not an order at all, but a request, which seems a very odd use for an EO. Why didn't the President choose instead to issue less formal memorandum agency heads? My best guess (and it is only a guess), based on Hahn and Sunstein's 2002 article, is that this is a first tentative step toward a bolder assertion of presidential authority over independent regulatory agencies.

EPA Publishes Proposed Rule on Mercury Emissions from Coal-Fired Power Plants

EPA has finally gotten around to seriously regulating toxic mercury emissions (as well as other toxins) from coal-fired power plants. The announcement is here. A fact sheet on the proposed rule is here. The full proposed rule is here.

Mercury is of special concern because exposure (mainly through consumption of contaminated fish) can cause damage to nervous system development in fetuses, infants, and young children. Other toxins to be regulated under the rule include arsenic, nickel and chromium, all of which are known carcinogens. The rule will impose emissions standards (under section 112 of the Clean Air Act), which will effect 1,350  power plants nationwide. It aims to reduce their mercury emissions by 91%.

The rule, which will take effect (unless withdrawn or amended) after a 60-day public-comment period, is expected to avoid (by 2016) between 6,800 and 17,000 premature deaths, 4,500 cases of chronic bronchitis, 11,000 nonfatal heart attacks, 12,200 hospital visits, 11,000 cases of acute bronchitis, 850,000 missed work days, and 120,000 cases of aggravated asthma.

Industry is already complaining about the gross costs of the rule, which could amount to $10 billion per year (see here). But, according to the proposed rule's Regulatory Impact Analysis (RIA) (here), it will yield annualized net benefits (in 2007 dollars) ranging from $42 billion to $120 billion (using a 7% discount rate), or $48 billion to $130 billion (using a 3% discount rate), not including several difficult-to-quantify benefits. The benefits of the rule outweigh the costs, according to EPA's estimates, by a factor of 13-to-1 (using a 3% discount rate) or 5-to-1 (using the 7% discount rate).

If the RIA is anywhere close to accurate, this rule is a no-brainer. Of course, that won't stop the anti-brainers in Congress from trying to stop it.

President Bush's Trusted Policy Advisors on Climate Change

In January 2008, after the Supreme Court's ruling in Massachusetts v. EPA that the agency had authority under Clean Air Act to find that the greenhouse gases endangered public health, EPA Administrator Stephen Johnson sent a letter to President Bush noting that he was preparing to make such an endangerment finding because the

latest science of climate change requires the Agency to propose a positive endangerment finding….  the state of the latest climate change science does not permit a negative finding, nor does it permit a credible finding that we need to wait for more research.

Johnson's letter also set forth a detailed plan for regulating greenhouse gas emissions under the Clean Air Act (see here).

As it happened, President Bush overruled Johnson's decision to make an endangerment finding, after consultations with other important agencies of the federal government including Vice President Cheney, the heads of the Office of Management and Budget and the Transportation Department, and Exxon Mobil Corporation. Funny, I don't recall the Senate voting to confirm Exxon Mobil as a member of the President's cabinet.

Hat tip: Brad DeLong.

Mitch Daniels Is a Serious Politician, but Not A Serious Contender for the Republican Nomination (and He Is Not Serious At All about Environmental Protection)

In his keynote speech to CPAC a couple of evenings ago, Indiana Governor Mitch Daniels burnished his fiscal-conservative credentials by calling for "bariatric surgery" for the "morbidly obese" federal government (see here). Whether or not one agrees with his diagnosis and prescription, Daniels deserves credit for bravery.

In stark contrast to the other 2012 presidential hopefuls appearing at the conservative conference, Daniels virtually leaped onto the "third-rail" of politics, explicitly recommending dramatic changes in the structure of Medicare and Social Security. That, along with Daniels's argument that the "culture wars" should, at least for the time being, take a backseat to fiscal reforms, separates him from virtually every other potential candidate in the Republican field, including both heartfelt social conservatives and mere panderers.

The sharp intensity of Daniels's focus on fiscal reform and shrinking the size of the federal government - a focus Daniels seemed to lack when he was Director of the Office of Management and Budget under George W. Bush (see here) - is a two-edged sword. It marks him as an unusually serious politician, but at the same time virtually guarantees that he will not be a serious contender for the Republican nomination.

Putting to one side his "nominatability," and conceding his earnestness about policy, Daniels's laissez-faire attitude toward the economy (sometimes tinged with a corporatist flavor, especially on matters of energy policy) provides reason for concern. That attitude is more than evident in his contemptuous treatment of environmental protection and the Indiana Department of Environmental Management (IDEM) during his tenure as governor of Indiana (on which see my earlier blog post here). A November 2009 editorial in the Post-Tribune of Northwest Indiana provided the following list of Daniels's environmental "accomplishments" as governor:

• Closed the IDEM office of enforcement.
• Weakened enforcement rules, making it necessary to demonstrate environmental degradation before state takes action.
• Ended contracts with local air pollution monitors.
• Removed nearly all references about global warming in the state's educational material for kinds.
• Appointed a coal industry attorney as IDEM's lead counsel.
• Fast-tracked the BP Whiting expansion permit, weakening it in the process and potentially endangering the much-needed capital project

Daniels's speech at CPAC this past week, where he called for large-scale reductions in government regulations, confirmed that he would bring the same anti-environmental attitude to the White House. His call for large-scale deregulation is consistent with a recent op-ed Daniels published in the Wall Street Journal (here), calling for (among other things):

A "freedom window." Might we try some sort of regulatory forbearance period in which the job-killing practice of agonizingly slow environmental permitting is suspended, perhaps in favor of a self-certification safe harbor process? Businesses could proceed with new job creation immediately based on plans that meet current pollution or safety standards, or use best current technology, subject only to fines and remediation if a subsequent look-back shows that the promised standards were not met.

On a simplistic analysis - the only one Governor Daniels has yet provided - deregulation seems a natural way to spur the economy and job-creation. After all, whatever funds businesses are not required to expend on complying with environmental and other onerous regulations, are available for investment in productive activities; and increased production would likely lead (at some point) to more jobs. But this logic ignores pollution and other externalities from industrial production that impose very real costs on society. A careless deregulation of environmental protection would, in fact, reduce the overall productivity of the American economy and net social welfare (see, for example, this report by Harvard economist Dale Jorgenson and Northeastern University economist Richard J. Goettle on the net positive productivity and welfare effects of the Clean Air Act).

The reflexively pro-business Daniels seems blind to the very real distinction between efficiency-enhancing regulatory reforms (a good thing) and the false economies of radical deregulation (a bad thing). In that respect, at least, he is just like the other potential Republican nominees for 2012.

New Executive Order on Regulatory Impact Analysis

President Obama signed a new Executive Order (EO) today (available here), which does not replace but supplements the existing Executive Order 12866. The most significant  addition of the new EO is its requirement of regular post hoc regulatory reviews. Until now, federal executive branch agencies have only been required to prepare ex ante regulatory impact analyses (a form of cost-benefit) analysis for newly proposed regulations. This new requirement forces agencies to go back and periodically examine existing regulations to ensure that they are, and remain, cost-effective. It is a very sensible addition to the regulatory review process.

Unfortunately, the new EO does not address the issue of social discounting - the process whereby future streams of costs and benefits are expressed in present dollar values. I, for one, had been hoping that the new EO might adjust downward the current baseline discount rate of 7%, which is quite high especially for regulations with intergenerational effects.

Well, That Didn't Take Long

From The New York Times (here):

On the first full day of legislative business, House Republicans introduced measures on Wednesday to block the environmental agency’s proposed regulation of greenhouse gases and new rules limiting toxic air emissions from cement factories.

The Republicans will tell you, supported by absolutely no evidence, that "job-killing" EPA regulations are a significant cause of unemployment. Don't you believe it.  

Final Rule on Monitoring and Reporting on CCS

The Environmental Protection Agency (EPA) has published a final rule (here) requiring facilities that engage in geologic sequestration of carbon emissions as a method to mitigate climate change. This new rule is important for three reasons, two of which are substantive and one of which is political. The two substantive reasons are: (1) carbon capture and sequestration is a necessary and integral part of any reasonable near-term plan to mitigate carbon emissions; and (2) monitoring and reporting requirements are critical to ensure that sequestered carbon does not escape sequestration and does not contaminate groundwater supplies. The new rule is politically important because it reminds Congress that EPA is moving forward on climate change, pursuant to the Supreme Court's determination of its statutory mandate under the Clean Air Act, regardless of all the climate deniers coming into Congress next month.

This rule does not solve all of the problems of carbon capture and sequestration. Among others, important issues of property rights in underground storage areas remain to be resolved.