Game-changing EPA Rules Put Loyalty of Some to the Test, Applauded by Others

Photo by Tony Cadwalader

Photo by Tony Cadwalader

Natural gas, nuclear and alternatives will likely see the largest boost by the EPA’s regulations

It’s time to sift through the fallout from the Obama Administrations EPA-charged regulation changes announced yesterday. The one thing on which everyone seems to agree is that coal industry and the Americans who work in that industry are likely to fare the worst, and that energy prices for consumers will potentially skyrocket.

At Bloomberg, Mark Chediak and Jon Paulson say Obama’s climate proposal will shift industry foundations:

Coal-dependent power companies from American Electric Power Co. (AEP) to Duke Energy Corp. (DUK) face billions of dollars in added costs from the Obama administration’s proposed climate rules. Renewable-energy backers and nuclear generators like Exelon Corp. (EXC) stand to gain from the effort to shift the foundations of the U.S. energy industry.

The regulations will be felt from the coal mines of West Virginia to natural gas wells in the Marcellus Shale as the U.S. moves toward cleaner fuel sources. A clampdown on emissions from coal-fired plants, the largest source of electricity, will force state regulators to determine whether consumers will foot the bill for reducing gases that contribute to climate change.

The redrawing of the U.S. energy map stems from the Environmental Protection Agency’s proposal yesterday to cut power-plant emissions — the nation’s single largest source of carbon dioxide — by 30 percent from 2005 levels. The reductions give the Obama administration ammunition as it seeks to convince developing nations from India to China to join a global agreement needed to avert dangerous climate change that’s affecting cities worldwide.

At Forbes, Christopher Hellman, writes that the primary effect of the rule will most likely be the dramatic expansion of natural gas as a fuel for power generation.

The U.S. Chamber of Commerce figures the plan could scotch $50 billion a year in GDP and prevent the creation of more than 220,000 jobs per year. The hit to household disposable income would be more than $550 billion a year.

On the other hand, the Natural Resources Defense Council figures the rule will create more than 250,000 jobs (someone’s got to install all those solar panels and windmills) and will lead to lower energy bills over time.

The EPA reportedly estimates that investments needed to meet the emission limits will cost about $8 billion a year, but would save 6,600 lives and more than $50 billion a year in health care costs tied to air pollution.

Casualties of the plan? Coal miners and owners of coal-fired power plants. Don’t expect their shares to sell off on today’s rule revelation though — EPA has been telegraphing its plans for months, so the bad news is baked in.

As I wrote about in April, it is clear to analysts that coal will bear the brunt of this anti-carbon crusade, while natural gas will be the big winner. Coal-fired power plants are responsible for about 25% of all greenhouse gas emissions in America. Per megawatt-hour, coal plants emit about 1 metric ton of carbon dioxide. Compare that to natural gas turbines, which emit just .4 metric tons per mWh.

Hugh Wynne, analyst at Bernstein Research, has figured that switching from coal to gas will be the most cost-effective method of achieving the EPA objectives. He notes that the nation’s natural gas power plants are currently operating at an average of just 45% of capacity. Ramping this up to 90%, while reducing coal-fired generation by the same amount, would have the effect of reducing carbon emissions by 550 million metric tons per year. That’s equal to about 25% of power generation emissions, or about 8% of total U.S. greenhouse gas emissions.

Hellman argues the regulations will not kill coal, at least immediately. “According to the Energy Information Administration, the amount of energy that the nation gets from burning coal is nine times what we get from solar and wind, combined. Eliminating coal from the power generation mix without replacing it with other baseload electricity sources would lead to blackouts during times of peak demand in summer and winter. Policies that cause Grandma to freeze to death usually don’t last long.”

That’s why you can expect the costs to rise.

Over at National Geographic Christina Nunez says what’s most striking about the rules is that “for all the ambition they represent they also appear designed to lock in carbon reductions that have been under way for years, as the United States has begun easing away from coal and toward natural gas and alternative energy sources.”

She has four takeaways from yesterday’s announcement. In bullet-point form they are:

  • The United States is well on the way to meeting the goal of cutting carbon emissions by 30 percent.
  • It’s not a great day for coal, but it’s not an immediate death knell.
  • A few states will have tough choices ahead.
  • On their own, the new EPA rules won’t be enough to reduce climate change.

Walter Russell Meade and his staff at the American Interest see this as the opening salvo in, what will likely be a long and protracted battle.

This is just the beginning of what is sure to be a hard-fought battle. The EPA won’t release a final version of the new rule until next June, and will accept public comment in the intervening time. Then, states will have until June of 2016 to put together plans to meet the 2030 targets, or file for extensions. In the meantime, both sides will attempt to galvanize support for their positions.

Reuters says Democrat politicians are likely to be the first victims of the proposed changes:

Democrats in Republican-leaning states have a simple strategy for dealing with President Barack Obama’s upcoming power plant restrictions before the mid-term elections: Fight them, with the White House’s blessing.

The new rules, popular with the Democratic Party’s base, are one of Obama’s highest domestic priorities for his second term.

But they are complicating the lives of Democrats in coal and oil-rich states such as West Virginia, Louisiana and Alaska, where candidates are piling on the president and the Environmental Protection Agency for proposing restrictions that could cost jobs locally.

With control of the U.S. Senate up for grabs in the November congressional elections, Democrats’ hopes of maintaining their majority could rest on the very races where the new energy rules are deeply unpopular.

So, the White House is turning a blind eye to attacks from within the party, despite the importance of the regulations to Obama’s agenda and post-presidential legacy.

Of course, it’s always about Obama. But RollCall notes that these vulnerable Democrats are giving the EPA “mixed reviews.” And, the heavy-handed rules will likely test the loyalty of union allies and potentially lead to greater fissures within the party, as six of the top 10 donors to the party are unions. According to the Washington Free Beacon, unions slammed the EPA and the Administration:

Labor unions criticized the Environmental Protection Agency’s new regulations on carbon emissions from power plants on Monday, highlighting growing tensions between the environmentalist and working class arms of the Democratic Party.

Those tensions have come to the forefront as leading Democrats embrace environmentalist policies backed by billionaire political donors that are generally opposed by members of the party’s rank and file base.

Some labor unions, groups generally considered loyally Democratic, rebelled on Monday after the EPA released its new regulations, which studies have suggested will carry hefty economic costs.

United Mine Workers of America (UMWA) president Cecil Roberts blasted the proposal, saying it would leave tens of thousands of the union’s members unemployed.

“The proposed rule … will lead to long-term and irreversible job losses for thousands of coal miners, electrical workers, utility workers, boilermakers, railroad workers and others without achieving any significant reduction of global greenhouse gas emissions,” Roberts said in a statement.

According to a UMWA analysis, Roberts said, the rule will cause 75,000 job losses in the coal sector by 2020, rising to 152,000 by 2035.

At HotAir Erika Jonson says the unions will probably stay within the fold, but shouldn’t be too happy about it.

Perhaps the White House is hoping that the major demonstration of Climate Change Seriousness they can now offer to the environmentalist lobby will make the juice worth the squeeze, and perhaps individual Democrats are hoping that they can demonstrate enough anti-Obama/regulations sentiments that they’ll still get their donations from labor unions, but it’s no wonder these guys are upset. As the EPA states in their own language, the goal of these regulations is to completely do away with at least a handful of the country’s coal-fired power plants — which means a forced and accelerated market transition that will definitely result in job losses.

The Wall Street Journal says the irony is that all the damage will do nothing for climate change. “Based on the EPA’s own carbon accounting, shutting down every coal-fired power plant tomorrow and replacing them with zero-carbon sources would reduce the Earth’s temperature by about one-twentieth of a degree Fahrenheit in a hundred years.”

Of the 32.6 billion metric tons of carbon the global economy threw off in 2011, the U.S. accounted for 5.5 billion. Mr. Obama’s logic seems to be that the U.S. should first set a moral example by imposing costs that reduce our prosperity. This will then inspire China (8.7 billion tons), which produces and consumes nearly as much coal as the rest of the world combined, to do the same to its 300 million people who still live on pennies a day. Good luck persuading Xi Jinping.

The EPA’s legal afflatus means that its carbon rule will be litigated for years, and we hope the states take the lead. […]

In the American system, legislative inaction does not create a vacuum that the executive is entitled to fill. Almost all economic and human activity has some carbon cost, and the huge indirect tax and wealth redistribution scheme that the EPA is imposing by fiat will profoundly touch every American. Voters should at least have a say and know the price they will pay before ceding so much power to regulators.

But it does feel good to do something, anything about “climate change.” Jeffrey Sachs, who is director of the Earth Institute at Columbia University, writing at the Huffington Post says, kudos to the White House and EPA on the new climate regulations. “Let the climate deniers and special interests scream. The rest of us should offer our applause and political support to the White House and EPA for a crucial job well started today!”

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