Regulatory Reality vs. Rhetoric

First there was the warning about a construction moratorium – all new major stationary sources would come to an immediate halt because of EPA’s new source review requirements for greenhouse gas emissions (GHGs). Soon after the alarm went out about the approaching regulatory “train wreck” that would result from a series of EPA rules impacting electric utilities. A large number of power plants would shut down, the reliability of our energy supply would be sacrificed, and consumers would face skyrocketing costs.

There was only one problem with these warnings – they were made before anybody knew what the actual regulations would require. Now that EPA has issued several of these rules, it is useful to revisit these doomsday scenarios and see if the reality of the proposals matches the rhetoric before the fact.

EPA’s new source permitting requirements: The concern here was that by requiring new and major modified sources to install “best available control technology” to limit greenhouse gas emissions, the Clean Air Act would  impose costly new control requirements on sources and disrupt the permitting process, causing substantial delays in project approvals (e.g., creating the construction moratorium). The Wall Street Journal editorialized that these rules would lead to a “de facto project moratorium" -- a "permitorium.”

In November 2010, EPA issued its guidance for how states should interpret “best available control technology,” and permitting requirements for the largest sources took effect on January 2. Since then Nucor Corporation’s proposed iron-making facility in Louisiana was the first project reviewed and approved under the new permitting requirements. Despite the warnings that “industry lobbyists are predicting nothing but trouble for facilities like the Hyperion Energy Center” (reported in Greenwire  12/13/2010), this large refinery and power plant facility in South Dakota was recently the second major source to receive its draft permit.

Regulations impacting electric utilities:  The electric utility sector is indeed facing a long list of new regulatory requirements including: new source performance standards; mercury and other hazardous air pollutant requirements; cooling water restrictions;  coal ash disposal requirements; and limits on greenhouse gas emissions.  Taken together, these are a lot of requirements coming all at once.  

But would it really be better to spread out these regulations over many years? Instead of knowing the regulatory roadmap ahead, utilities would face an uncertain future and not be in a position to decide how best to modernize their fleet, when to retire older units, and what types of new units to bring on. It is only by having a complete view of the regulatory landscape that companies can feel comfortable in making large-scale investment decisions.     

The substantive requirements that EPA has proposed to date also fall far short of the “train wreck” scenarios described by some. The hazardous air pollutant requirements will impose substantial costs but include flexibility for existing firms to average their emissions within a facility. Moreover, the estimated benefits of the rule are 5-12 times greater than its estimated costs. The cooling water structures proposal does not require all facilities to install expensive cooling towers as assumed in some of the pre-proposal train wreck scenarios.

It is inevitable that some projects will get delayed in the new source review permitting process, just as some projects have been challenged under existing permitting requirements. It is true that there will be costs associated with these rules, but it is also true that the benefits resulting from the rule will far outweigh its costs. Above all, the dire warnings issued prior to EPA’s rulemakings fail to reflect the reality of the regulatory proposals that are being implemented.  

Steve Seidel is Vice President for Policy Analysis