Is America’s War on Fossil Fuels Even Good Politics?

EIA International Energy outlook 2011 Coal figure_5-sm

The conventional wisdom is that the US EPA’s virtual war on fossil fuels especially coal is part of a concerted policy prescription to reduce greenhouse gas emissions and save the world from the consequences of global warming, climate crisis or climate change as it has been variously called.  EPA has promulgated rules including the Cross State Air Transport rule, the Maximum Available Control Technology Rule and the Once thru Cooling Water Rule among others to give life to this policy regime.  The estimated impact on power supply could be the premature retirement of up to 83,000 MW of coal fired power generation.

There is no standardized methodology for calculating the cost benefit ratio of Federal regulations just as there is no duty of the part of any Federal agency to balance those regulatory costs and benefits.  Regulatory beauty is thus in the eye of the beholder.  Environmental advocates see these rules as the best news since sliced, organic whole grain bread.  Opponents see them as a direct frontal assault on electric reliability and the American way of life.  Somewhere there is a prudent balance that represents the public interest, but as yet there is no consensus on where that balance is.

I have no personal beef with the general policy view that we should reduce our impact on the planet as good stewardship and avoid spewing toxins in the air or water.  There is broad public support for these environmental goals.  We have made good progress in cleaning up both the air and water as a result of past regulations.  And while there is always squawking about how much the regulation costs industry and thus the public we have mostly found ways to make it work.

I could even be persuaded to the view that these recent EPA regulations are a reasonable next step in our longer term goal of good stewardship except for several ‘inconvenient truths’ about the rules, their intended impact and the process being used to promulgate them.

Crude oil Imports Falling

Those inconvenient truths are as follows:

  1. The New EPA Rules are Unnecessary—Low Natural Gas Prices are Eating Coal’s Lunch.  These rules are more about politics and pandering to the President’s environmental base than they are good stewardship.  I would argue that doing nothing would produce reductions in coal fired generation almost as profound as these rules because of the withering effect of low natural gas prices on the economics of coal fired power plants.  Those low gas prices are due almost entirely to the growth in unconventional oil and natural gas development in North America made possible by horizontal drilling and hydraulic fracturing.  Increase domestic natural gas supplies have cratered imported LNG in the US and decoupled natural gas prices from oil prices.  The prospect of long term low natural gas prices is hurting coal as profoundly as any of these regulations.  The irresponsible impact of the new rules is to speed up that process and put electric reliability at risk by prematurely retiring coal generation before there is a reliable replacement in either natural gas or renewable energy.
  2. The New EPA Rules are Ineffective—They have no material effect on global coal use or emissions reduction. Achieving the broad stewardship goal of reducing global emissions requires the cooperation of many nations.  We have known since the failure of the Copenhagen conference of parties that there would be no worldwide agreement on reducing greenhouse gas emissions.  The non-OECD countries were more than willing to let the OECD especially the US and EU bribe them to comply knowing full well that their own strategic imperatives for economic growth meant they would cheat.  The EU was seduced by that fraud, but President Obama to his credit refused that no-win deal.  So the bottom line of the new EPA rules is we could shut down every American coal plant and it would have no material impact on global GHG emissions because China is building new coal plants at the rate on 1 GW.  The US EIA’s International Energy Outlook for 2011 says world coal consumption is projected to increase from 139 quadrillion Btu in 2008 to 209 quadrillion Btu in 2035, at an average annual rate of 1.5 percent. Regional growth rates are uneven, with little growth in coal consumption in OECD nations but robust growth in non-OECD nations, particularly among the Asian economies.
  3. The EPA War on Fossil Fuels is Bad for the Clean Energy Economy.  The sin of the EPA political agenda driving this war on fossil fuels is the belief that it represents good public policy.  The sacrilege is that it undermines the transition to a sustainable clean energy economy by making the perfect (no fossil fuels) the enemy of the good (substitute cleaner natural gas for dirtier coal and oil).  And in so doing, the policy weakens America’s domestic energy security and reliability and makes us more dependent upon imported oil and global fuel markets.  The best evidence of the redeeming power of unconventional oil and natural gas is the robust growth in domestic supplies over the past five year enough to bend the long term trend lines in our favor after decades of slow decline in domestic production.  Low natural gas prices are the mothers’ milk of industrial rebirth making it economic for chemicals, plastics, and other energy intensive industries to return to the US creating jobs, paying taxes and reducing our balance of payments deficit.

The policy hostility toward domestic energy production may seem like a short-term winner in the 2012 election but it undermines our national security, undermines our economic recovery, and undermines our shared policy goals of migrating to a cleaner energy economy that is sustainable, profitable and job creating. That makes is neither good policy nor good politics.