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LORIS: Crushing coal under the regulatory steamroller

- - Wednesday, August 29, 2012

ANALYSIS/OPINION:

The Environmental Protection Agency received another well-warranted slap on the hand last week. In a 2-1 decision, the U.S. Court of Appeals ruled that the EPA had overstepped its authority in its latest attempt to regulate emissions that cross state lines. As one of the judges succinctly put it, "[W]e conclude that the EPA has transgressed statutory boundaries."

This is by no means the first time the courts have told the EPA that its penchant for heavy-handed regulation is out of order. Earlier this year, the U.S. District Court for the District of Columbia rejected the EPA's attempt to retroactively veto a Clean Water Act permit issued by the Army Corps of Engineers — in 2007. The court labeled the EPA's interpretation of the rule as "unreasonable."

But the series of unfavorable (to the agency) rulings has done nothing to reverse the federal government's penchant for hang-the-cost regulations. And that has real-world consequences. The regulatory onslaught on coal, for example, is killing the industry and burdening American consumers with artificially high energy costs.

A host of federal agencies are proposing and implementing new rules that will increase the costs of mining coal, building new plants (although new carbon-dioxide regulations make that next to impossible) and operating existing plants — all for questionable or minimal environmental or public health benefit.

Of course, the regulators promise tremendous benefits. For instance, the EPA claims its mercury and air toxics rule would produce $53 billion to $140 billion in annual benefits. Yet that figure includes "co-benefits" that are supposed to be realized under existing regulations. The benefits to be derived from the rule's mercury reductions would — by the EPA's own reckoning — amount to at most $6 million, a fraction of the estimated $10 billion in compliance costs.

But the new regulations are already producing very real — and undesirable — consequences. Ohio's FirstEnergy Corp. announced that it will close six coal facilities because of the new environmental regulations. A Georgia utility recently retracted funding for a permit application, citing the EPA's air-quality rules. That's home-grown energy capacity — present and future — down the tubes.

Since energy is needed to produce, transport and run virtually everything used in modern work and play, these insensitive regulations will drive up prices for virtually all goods and services — including, ironically, basics such as heating and air conditioning, that are critical to public health. Worse, these rising costs inevitably siphon away resources that could be devoted to activities that truly would improve America's public health.

Undoubtedly, the abundance of natural-gas production resulting from horizontal drilling and hydraulic fracturing has cushioned the blows the administration is raining down upon America's energy economy. Fuel-switching for economic reasons is sensible. There's certainly no reason the U.S. should continue to mine coal or build coal-fired power plants just for the sake of using coal. But there's also no reason why the federal government should artificially reduce coal's role in energy production by creating an environment that makes a decline in coal production inevitable.

And the higher energy prices are coming, too. PJM Interconnection, which manages the electricity grid for 13 states and the District of Columbia, held its capacity auction to determine the amount of electricity necessary to meet expected demand. According to PJM, capacity auction prices for 2015 were higher "because of retirements of existing coal-fired generation resulting largely from environmental regulations which go into effect in 2015."

For decades, coal has literally been the rock that has powered America with cheap, reliable energy. At current consumption rates, coal can provide enough electricity to fuel our nation for the next 500 years. Yet the current regulatory regime seems intent on penalizing and punishing traditional forms of energy, while simultaneously subsidizing and guaranteeing a market for its preferred (albeit as yet non-economical) alternative sources.

The recent U.S. Court of Appeals ruling is a welcome recognition that the EPA's unelected bureaucrats have gone too far. But Congress must also step up to the plate and reform federal policies and regulations to enable the market — not politicians and bureaucrats — to determine the role of coal in U.S. electricity generation.

Nicolas Loris is the Herbert and Joyce Morgan Fellow at the Heritage Foundation's Roe Institute for Economic Policy Studies.