The Path More Regulated: EPA rules generate debate, but little else clear

By Dorothy Davis

One of America's most critical resources is the nation’s electrical grid, an engine of commerce across essentially all industries. The less popular side of the electric generation industry is its role as one of the country's biggest sources of emissions.

While everyone wants to keep the lights on, consumers now more than ever are demanding cleaner energy. In response, the U.S. Environmental Protection Agency (EPA) took decisive action last year to reduce emissions. The new regulations are spread across several major new proposals covering both the energy industry and several other related sectors.

Perhaps the most widely-reported rule has been the Mercury and Air Toxics Standards (MATS), which the EPA hails as the first overarching regulation of emissions of toxic substances ranging from mercury to arsenic. Technically the EPA implemented rules governing mercury emissions under the Bush administration, but these regulations were challenged by local and environmental groups for failing to meet standards set out by the Clean Air Act.

On top of these new emissions limitations, the EPA also imposed restrictions on emissions that travel across state boundaries. The Cross-State Air Pollution Rule (CSAPR) would replace the Clean Air Interstate Rule (CAIR) from 2005 and requires more than two dozen states to reduce their emissions of sulfur dioxide, nitrogen dioxide and ozone. CSAPR has been challenged in court and the industry is currently operating under CAIR while the case is reviewed.

Lastly, a more specifically targeted rule would require that all businesses using boilers and large incinerators to meet specific emissions standards for chemicals such as mercury and other substances like soot, known as the Maximum Achievable Control Technology or MACT standards. Most boilers already meet these standards, but some 1 percent would need maintenance, modification or replacement.
Each of these new rules would be implemented under the timeline laid out in the Clean Air Act, requiring full compliance with the law within three years, with the possibility of a one-year extension at the discretion of the EPA.

The debate over these new rules has involved vehement arguments on either side, with the EPA touting huge potential health savings and many energy companies insisting the costs of implementing these new regulations could prove economically catastrophic.

The impact on electric generation capacity alone could reach a substantial level. The North American Electric Reliability Corporation estimates that, between derated power plants and retirements, the MACT standards alone could lead to the loss of anywhere from 2.9 gigawatts (GW) to 17.6 GW of generation capacity. The CSAPR regulations, meanwhile, could lead to the loss of between 2.8 GW and 7.2 GW.

Combined with all other new regulations the report predicts anywhere from 40 GW to 76 GW of lost capacity. According to the EIA, the highest figure represented more than 7 percent of the country's electricity generation capacity in 2010.

In particular, a report from Credit Suisse projects that around 60 GW of coal-fired power plants are likely to shutter. Given that NERC projected lower-than-usual capacity reserves in some of the affected areas, particularly Texas, in its 2011 Long-Term Reliability Assessment, those losses could prove costly.
Certain sectors expect to be hit particularly hard by the new regulations. The American Forest and Paper Association notes an internal report estimating as many as 36 paper mills might be forced to close without the ability to pay to upgrade outdated boilers. Those closures would cost more than 20,000 jobs. The Council of Industrial Boiler Owners projects even more substantial cuts of 230,000 jobs, suggesting that the vast majority of current boilers are entirely incapable of meeting the proposed standards at all. Replacement and improvement costs are estimated at $14.3 billion.

All told, a report commissioned by the American Coalition for Clean Coal Electricity and composed by National Economic Research Associates found that the net effect through the rest of the decade would be a loss of 1.4 million job-years. That amounts to a net loss of around 175,000 jobs. It also projects electricity rates to rise around 12 percent, imposing its own economic costs.

But not all analyses project economic losses because of the rules. Credit Suisse portrays the new regulations as an opportunity to realize larger profits on existing generating capacity that already does or can meet emissions standards, which represents the majority of all generating capacity. This will necessarily mean higher electricity rates for the affected areas, and potential economic costs as a result, but also means greater stability for natural gas-fired power plants and other electricity generators, as well as the potential for greater investment in new capacity that meets emissions standards.

A Bloomberg Government study goes so far as to suggest that the new EPA regulations will have limited impact on the energy sector and similarly minimal effect on actual emissions.

But other analyses project a more substantially positive impact. The EPA estimates the MATS regulations alone will produce 46,000 temporary construction positions and another 8,000 long-term jobs.
A report put together by environmental advocacy group Ceres and the Institute of Clean Air Companies suggest that the total economic impact of the new rules could mean as many as 1.5 million new jobs over the next five years. Many of these would be shorter-term construction positions, while others would come from long-term jobs with power plants or at environmental control mechanism manufacturers. The remainder would represent the broader impact of these new jobs.

The Economic Policy Institute takes a more inclusive approach, accounting for lost positions in the energy sector and their impact, but still finds a net gain of between 28,000 and 158,000 jobs in the same time frame. The energy industry could stand to lose as many as 17,000 positions, while anywhere from 31,000 to 46,000 jobs could be lost because of higher electricity rates.

However, the energy sector could also gain as many as 35,000 positions as resources shift in other directions, while the pollution control industry would add at least 81,000 jobs. With the net-positive impact on industry jobs, the impact on secondary economies is expected to be substantially positive as well.

So where do all these numbers leave the electric power industry and consumers in terms of the far reaching impact of these new regulations? Nowhere near a clear answer unfortunately. What lies ahead is as always determined by what roads are taken now and that road is still being paved by electric power regulators, providers and consumers.

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