David Driesen on CPRBlog {Bio}
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A Mass-Based Cap for Power Plants

EPA’s proposed new rule for greenhouse gas emissions from power plants gets a lot of things right. For one thing, it recognizes that electric utilities can employ a variety of measures to reduce greenhouse gas emissions. They can switch to natural gas or even renewable energy sources. They can fund end-use efficiency improvements—such as energy efficient windows, better insulation, and light bulbs that burn brightly even while they conserve electricity. All of these techniques reduce power plant emissions. So, EPA is right to make them building blocks for its rule. 

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The Keystone EIS’ Grudging Acknowledgment of Environmental Impact

The media has reported, erroneously, that the Obama Administration’s environmental impact statement concluded that the Keystone Pipeline would have no impact on global climate disruption. The facts are a bit more complicated, and much more interesting. Basically, the final EIS concedes that Keystone would increase greenhouse gas emissions, but it uses a silent political judgment masquerading as scientific analysis to minimize its estimate of the increase’s magnitude. Accordingly, President Obama has ample grounds to reject the Keystone Pipeline application.

Let me explain. The EIS concedes that the construction project creating the Keystone Pipeline would produce .24 metric tons of carbon dioxide equivalents (MMTCO2E) per year until TransCanada completes the pipeline. It also admits that operation of the pipeline after construction would produce 1.44 MMTCO2E per year, about the emissions of 300,000 passenger vehicles.

Although this is a lot of emissions, the really huge emissions come not from the construction and operation of the pipeline, but from the extraction and use of tar sands oil. The EIS concludes that the tar sands oil transported through the pipeline would produce a whopping 147 to 168 MMTCO2E per year in lifecycle emissions, approximating the annual emissions of more than 30 million cars. The huge emissions associated with tar sands oil has led James Hansen, a leading climate scientist, to conclude that exploiting tar sands oil means “game over” for climate change.

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Keeping OIRA from Harming Efforts to Reduce Greenhouse Gas Emissions

 This blog explains why President Obama should exempt proposals to mitigate climate disruption by reducing greenhouse gas emissions from OIRA review. First, the procedure that justifies OIRA review, cost-benefit analysis (CBA), just does not work for climate disruption measures. Second, CBA undermines just and legal climate policy. Third, climate disruption poses special risks that make the delay and weakening that comes from OIRA review unacceptable. 

Because of climate disruption's nature, prominent CBA proponents, such as Eric Posner and Martin Weitzman, have argued that CBA works badly for climate disruption. Weitzman emphasizes that climate disruption creates a risk of a catastrophe. Because the magnitude and likelihood of such a catastrophe remain unknown, CBA cannot include a reasonably reliable benefit estimate. Weitzman argues that this problem so dominates any rational response to climate disruption that conventional CBA becomes useless and highly misleading as a guide to climate policy.  


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New Source Standards for Power Plants: The Status Quo and Sensible Government

Almost every new power plant that the electric utility industry has built in recent years has been a natural gas powered plant. Industry rarely builds new coal-fired power plants anymore because gas has become much cheaper than coal. That is a very good thing. Absent rather expensive carbon capture and storage, new coal-fired power plants emit far more greenhouse gases than natural gas powered plants.

The new source standards promulgated today will tend to lock in the current status quo. They will likely impose no net cost on the economy, because natural gas has become cheaper than coal. Instead of generating electricity with the dirtiest fuel source, we will continue to rely more heavily on a somewhat cleaner fuel source. Given the effects of climate disruption one could argue that these standards do not go far enough. Climate disruption has likely caused heat waves, sea level rise, intensified hurricanes, wildfires, and droughts already. And scientists predict intensification of these effects if greenhouse gas emissions continue without surcease. It is not clear that EPA is being as demanding as it could be, since these standards do allow utilities to build new coal-fired power plants even when using gas would produce less greenhouse gases. Nor do they aggressively maximize the emission reductions available from natural gas. Yet, these new standards will lock in technological advances substantially reducing emissions, at least when utilities build new plants.

Any technological advance does create some losers along with the winners. But when computers made typewriters obsolete, nobody suggested that we stop companies from building personal computers because a robust computer industry would hurt the typewriting industry. Similarly, when Apple started making I-Phones, nobody sought to stop this on grounds that it would hurt sales of MP3 music players and landline phones. And in the last few years, when electric power producers started substituting natural gas for coal, nobody suggested that the impacts on coal producers should stop us from allowing electric utilities from making this change. The technological improvements that have made America a leading economic power always come with some downside. Yet, our tendency to move forward has made us a great country.

Strangely, those in Congress who moan about environmental regulations “killing jobs” remained utterly silent when the electric utility industry started actually reducing coal mining jobs by switching to natural gas, not just for new plants, but for existing ones as well. Now that the EPA has, quite appropriately, stepped up to say that environment imperatives require this trend to continue at least for new plants (unless we can realize the promise of clean coal), we can expect these supposed champions of the working man to suddenly start denouncing EPA for destroying jobs. They will not mention the jobs created by drilling for natural gas and bringing it to market nor in developing and applying carbon capture and storage to new coal-fired power plants. They will not mention the serious harm global climate disruption will visit upon us if we do not start down the path of phasing out fossil fuels.  And they will not mention that the trend toward gas displacing coal is already far advanced without any push from EPA.  They will focus only on the losses and attribute those solely to EPA in a bid to try and revive an old, dirty, and dying technological approach that is already, thankfully, on its way out.

EPA deserves praise for taking this step forward in the face of opposition to sensible government so virulent that it objects to standards that do little more than lock in a recently altered status quo.  In a world where climate disruption threatens our very existence, we will need government to function well in order to stand a chance of avoiding horrific losses. This rule constitutes a good step in that direction. 

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Phasing out Fossil Fuels

We will phase out fossil fuels.  We have no choice. They are a finite resource and at some point they will run out.  Admittedly, coal will not run out nearly as quickly as oil, but sooner or later all fossil fuel resources will run out. 

The only question we face is whether we phase out fossil fuels before we have set in motion climate disruption’s worst effects or instead just allow a phase-out to occur through price shocks and shortages that we are ill-prepared to cope with, and risk a climate catastrophe.  Obviously, a managed phase-out makes much more sense.  Climate disruption will plague us with increasingly violent storms, flooding, drought, a spread of infectious diseases, and other calamities.  A reasonably rapid phase-out will help us avoid some of these impacts by first reducing and eventually eliminating emissions of carbon dioxide, the principal greenhouse gas.  At the same time, switching to cleaner fuels will save thousands of lives annually and many more illnesses right away, as burning the fossil fuels that cause climate disruption also causes particulate pollution and urban smog (tropospheric ozone).  A phase-out of fossil fuels also would gradually end destruction of land through coal mining and disastrous oil spills, like that of the Deepwater Horizon.

Although we cannot end fossil fuel use right away, we must move in the direction of a phase-out as rapidly as we can.  Carbon dioxide emitted in the atmosphere adds to the preexisting store of carbon and remains there for a very long time.  Hence, every year of inaction adds to a cumulative store of carbon in the atmosphere, making the climate disruption problem irreversibly worse.

We must rid ourselves of the illusion that we can drill our way to energy and price security.  Oil trades on a world market, even oil coming from the United States.  In 2011, we imported 45% of our oil from abroad, more than half from OPEC countries, and that was the lowest percentage since 1995.  Renewable energy, however, relies overwhelmingly on domestic fuels.  You cannot ship sunlight or wind to China.

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Exempting Climate Mitigation from OIRA Review

Cross-posted from RegBlog.

Nobody seems to have noticed, but the Center for Progressive Reform (CPR) recently recommended abolition of review by the Office of Information and Regulatory Affairs (OIRA) based on cost-benefit analysis (CBA). Its report on recommendations for the second Obama Administration made this proposal the sixth item in a list of seven executive orders that Obama could issue with a "Stroke of the Pen" (from the report’s title). In place of CBA-based review, which has often stymied or delayed needed environmental protections, CPR recommends a complete OIRA role reversal, charging it with addressing regulatory delay and helping agencies “achieve their statutory missions.” CPR also recommends abolishing review of minor rules altogether and improving transparency. 

What was first on CPR’s list of “stroke of the pen” reforms? An executive order to take action on climate mitigation – which would include a detailed list of regulatory actions with accompanying deadlines. 

My hunch is that the Obama Administration is going to be more inclined to adopt recommendation number 1 than recommendation number 6, particularly given the attention to the subject in the President’s Second Inaugural Address.   This does not mean that CPR erred in recommending abolishing CBA-based OIRA review. CPR is a virtual think tank of legal scholars, not a traditional environmental group, and it should put forward sound reform proposals that might be adopted, if at all, only after a very long period of debate and discussion.

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Regulation as a Dynamic Macroeconomic Enterprise

Reposted from RegBlog.

Traditionally, the field of law and economics has treated government regulation as if it were a mere transaction. This microeconomic approach to law assumes that government regulators should aim to make their decisions efficient by seeking to equate costs and benefits at the margin.

As I argue in a new book, The Economic Dynamics of Law, the microeconomic model of government regulation misconceives the essence of regulation. Government regulation produces not an instantaneous transaction, but a set of rules intended to influence future conduct, often for many years. Accordingly, regulation provides a framework for private resource allocation, rather than allocating the resources itself.   This framework performs a macroeconomic role by reducing systemic risks that might permanently impair important economic, social, and natural systems. As such, government regulation resembles monetary policy, which likewise affects, but does not control, resource allocation. 

Properly understood, the relationship between law and the economy implies that private actors can ameliorate the effects of nominally inefficient government decisions. Capitalism works precisely because government cannot assimilate sufficient information to make perfectly efficient decisions. Yet, the neoclassical model of law and economics assigns government the efficiency-enhancing role that properly belongs to private actors. 

In The Economic Dynamics of Law I propose a more appropriate way of thinking about regulation. This approach focuses on the shape of change over time in order to avoid systemic risk. We cannot expect government to make perfectly efficient decisions or ensure our future happiness, but we should, at a bare minimum, expect government to ward off catastrophes, leaving much of the fine-tuning to private markets. 

I also propose a form of institutional economic analysis that I call economic dynamic analysis, as a way to aid regulators in analyzing threats and responding efficaciously. Economic dynamic analysis requires regulators to study how relevant actors respond to economic incentives, taking into account the level of bounded rationality anticipated in each group of regulated actors. Such analysis requires, in particular, consideration of countervailing incentives that may defeat legal incentives. Economic dynamic analysis also calls for the use of scenario analysis in the case of some of our most serious problems. Finally, it includes empowerment analysis to determine who law might empower or disempower, as an extension of public choice theory.  

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Health Care's New Commerce Clause: Implications for Environmental Law

Although the Supreme Court upheld the Affordable Care Act’s requirement that most individuals purchase health insurance (called the individual mandate) as within Congress’ power to levy taxes, it stated that Congress lacked the power to enact it under the Commerce Clause.  Under prior case law, Congress could regulate activities substantially affecting interstate commerce by any means not offending the bill of rights.  Since the Affordable Health Care Act regulates a set of activities that substantially affect interstate commerce, namely the provision of health care (including insurance), it posed no substantial issue under that case law.  The objection to the “individual mandate” at bottom involved an effort by conservatives to defend individual liberty of the type protected by the Court during the Lochner era, when it created “substantive due process” doctrines to ward off progressive legislation. 

Yet, the Court agreed to redefine the issue as whether the activity regulated by a single provision of this plainly constitutional statute, namely the individual mandate provision, substantially affected interstate commerce.  On this matter, five justices—Alito, Kennedy, Roberts, Scalia, and Thomas—answered, in essence, that this provision regulated inactivity, the failure to purchase insurance. They created, out of whole cloth, a brand new constitutional principle that the federal government may not order somebody to purchase a product. 

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The Ozone Standard as Presidential Policy: Some Concerns

Cross-posted from RegBlog.

As Stuart Shapiro recently pointed out in a RegBlog post, President Obama himself made the decision a week ago to withdraw the U.S. Environmental Protection Agency’s (EPA’s) ozone National Ambient Air Quality Standard (NAAQS). Presidents have occasionally acted to resolve disputes between the White House Office of Information and Regulatory Affairs (OIRA) and EPA before, but typically OIRA acts in the President’s name without knowing exactly what he thinks about the regulatory details that OIRA negotiates with EPA. Stuart Shapiro also correctly points out that the President’s substitution of his general policy judgment for a judgment of an agency charged by Congress with the responsibility to implement a statute’s policy has implications for administrative law.

Obama’s withdrawal of the ozone NAAQS shows why these implications should trouble everybody, even those who do not like the Clean Air Act’s policy of basing the NAAQS on health considerations alone, leaving cost for later consideration in formulating plans to meet the NAAQS. Many Americans still believe that the “rule of law not men” embedded in our Constitution should mean something. There is some wisdom in this idea. Enacted law, however imperfect, can lend some stability to efforts to solve stubborn national problems and moderate the tendency of government to go into wild mood swings that can make government ineffectual. The rule of law, however, demands that those who enforce the law follow its policies even when they conflict with their personal or political preferences. 

The Supreme Court has held that EPA must set the NAAQS at a level that protects public health without regard to costs. Obama’s decision relies squarely on a rejection of the law’s fundamental policy, citing the burdens on regulated firms during a time of economic weakness as the primary reason for withdrawing the standard. I would find the President’s decision to ignore the law in favor of his own policy preferences troubling, since we long ago rejected monarchy, even if I were sure that his policy decision was a sensible one. 

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Incorporating the Best of Cantwell-Collins into KGL: Don't Forget the Missing Instrument

Last week, Senators Kerry, Graham, and Lieberman (KGL) reportedly released an 8-page outline for a bill mitigating climate disruption that they are crafting in order to try to break the deadlock that has heretofore blocked legislation in the Senate. ClimateWire reported that the KGL bill would incorporate ideas from the bill introduced by Senators Maria Cantwell (D. Wash.) and Susan Collins (R. Maine), the Carbon Limits and Energy for America’s Renewal (CLEAR) Act. That incorporation might be a good thing, because CLEAR contains several great ideas.

Last year, Amy Sinden and I characterized the idea of Dirty Input Limits (DILs), limits on inputs causing pollution rather than pollution itself, as the “missing instrument” in environmental law. We used the idea of creating a tradable permit market from limits on fossil fuel production and imports as an illustration of the potential of this instrument, which has been used in successful regulatory efforts to head off stratospheric ozone depletion and practically eliminate lead pollution, but has hitherto gone unnoticed as an environmental policy instrument. CLEAR in fact creates a DIL for fossil fuels, just as we recommended.

The main advantages of this approach come from its relative simplicity and its likely effect on innovation. We have far fewer fossil fuel producers and importers than fossil fuel users. By regulating upstream, CLEAR may reduce the number of entities that EPA needs to monitor. Also, by sending a strong signal that the government will demand reductions in fossil fuel use, this approach will likely jump-start innovation.

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