The American public is disenchanted with a do-nothing Congress and an administration that operates through executive orders. For those who wanted action with regard to a host of regulatory issues facing U.S. businesses, they'll get their wish. World War R is about to begin.
Energy and the environment are at the heart of the conflagration. President Obama has made climate change a key element in the legacy he wants for his administration. At the U.N. Climate Change Summit in September, Obama cited the "urgent and growing threat of a changing climate" and said the global community needs to "cut carbon pollution in our own countries to prevent the worst effects of climate change."
On Nov. 12, Obama and Chinese President Xi Jinping announced new targets to control carbon pollution. Obama pledged the U.S. would cut carbon pollution by 26% to 28% below 2005 levels by 2025. Xi said China would seek to peak CO2 emissions by 2030 or earlier. China also announced it would expand its share of zero-emission energy sources to 20% by 2030 through additional investment in renewables and nuclear energy. That would mean adding 800 to 1,000 gigawatts of zero-emission generation capacity in less than 20 years.
The Obama administration has taken a host of steps in the last six years to boost renewable energy, increase energy efficiency and reduce greenhouse gas emissions. In August 2012, for example, the administration adopted new fuel-efficiency rules calling for U.S. auto fleets to average 54.5 miles per gallon by 2025. In May 2014, the president announced a series of steps to promote solar energy and energy efficiency such as an additional $2 billion investment in energy efficiency for federal buildings and new standards for motors and walk-in coolers and freezers. Many of these energy-saving moves have been broadly accepted and uncontroversial.
But a series of costly, high-profile regulations expected to be promulgated by the Environmental Protection Agency are being met with formidable resistance in the business community. Of these, perhaps none is more controversial than the agency's impending action on power plant emissions.
Power plants produce approximately one-third of the greenhouse gas emissions in the U.S. In September 2013, EPA announced proposed carbon pollution standards for new power plants. Then in August of this year, EPA announced its intent to regulate emissions from existing power plants under the Clean Air Act. The latter proposal provides state-specific goals to cut carbon pollution, leading to an overall reduction in emissions of 30% from 2005 levels.
The U.S. Department of Energy estimates that up to 60 gigawatts of coal-fired generating capacity, approximately 20% of the nation's capacity, will disappear by 2020 as a result of regulations and the price advantage enjoyed by natural gas.
EPA said its proposal was tailored to each state and offered them a menu of solutions that ranged from energy efficiency improvements to changes in the mix of power generation sources.
Environmental organizations praised the EPA action as a necessary step in efforts to mitigate climate change. Frances Beinecke, president of the Natural Resources Defense Council (NRDC), called the proposal "a giant leap for Americans and future generations."
But National Mining Association President and CEO Hal Quinn urged EPA to withdraw the rule, calling it "another step in this administration's policies designed to eliminate low cost and reliable electricity and replace it with more expensive and less reliable sources." The U.S. Department of Energy estimates that up to 60 gigawatts of coal-fired generating capacity, approximately 20% of the nation's capacity, will disappear by 2020 as a result of regulations and the price advantage enjoyed by natural gas.
Noting that manufacturers use one-third of the energy produced in the U.S., the National Association of Manufacturers quickly objected to the existing power plant rule. NAM President Jay Timmons said the proposal could "singlehandedly eliminate" the competitive advantage that the U.S. enjoys from an abundance of energy sources.
The EPA rules clearly do not follow an "all of the above" energy policy, says Greg Bertelsen, director, Energy and Resources Policy with NAM. "The effective intention of the rule is to take certain fuel options off the table." For manufacturers, says Bertelsen, the rules will increase energy costs and raise concerns about the reliability of the electricity supply in the next five to 10 years.
At press time, the comment period on the rule for existing power plants was scheduled to close on Dec. 1. Last June, President Obama directed that EPA issue the rule by June 2015. States would have to implement their programs by June 2016.
In January 2010, EPA issued a proposal that the national air standard for ozone, the main component of smog, be reduced from 75 parts per billion to 60 ppb. EPA said the current standard had not been set in line with the scientific data on the risks from ozone. Those risks include aggravation of the respiratory system, asthma and even premature death from heart or lung disease. The agency said a 60 ppb standard would save 4,000 to 12,000 lives per year and result in 2.5 million fewer school and work day absences. Moreover, EPA said ozone was shown to damage sensitive vegetation, including trees such as black cherry and cottonwood.
At the ground level, ozone is formed in a chemical reaction between sunlight and nitrogen oxides, volatile organic compounds, carbon monoxide and methane. Emissions from industrial facilities, electric utilities, motor vehicle exhaust, gasoline vapors and chemical solvents all contribute to the problem, EPA noted.
But on Sept. 2, 2011, with the economic recovery still fragile, President Obama ordered EPA to withdraw the proposed standard. The action put the ozone standard back on a cycle to be reconsidered in 2013 under the CAA.
Environmentalists were furious with the reversal. John Walke of NRDC called the president's action "the most outrageous environmental offense of the Obama administration" and accused him of siding with "Big Oil and other polluters." Environmental groups, along with 12 states and the District of Columbia, then resumed a lawsuit originally brought against the Bush administration to strengthen the standard. On July 13, 2013, a federal appeals court found that EPA violated the CAA and required the agency to issue a proposed rule by Dec. 1, 2014.
[UPDATE: On November 26, EPA issued a proposed rule that would reduce ground-level ozone to a range of 65 ppb to 70 ppb. EPA also said it would take comment on lowering the limit to 60 ppb. The agency estimated annual compliance costs at $3.9 billion in 2025 for a 70 ppb standard and $15 billion for a standard set at 65 ppb.]
Reducing the standard from 75 ppb to 60 ppb, NAM warned, would result in the costliest regulation in U.S. history. In July, NAM issued a study, conducted by NERA Economic Consulting, which found that the rule would reduce U.S. GDP by $270 billion annually and a total of $3.4 trillion from 2017 to 2040. The study said the rule would result in 3 million lost jobs per year and cost the average U.S. household $1,570 per year in the form of lost consumption.
The rule would require "near unachievable levels" for ozone, warned NAM's Timmons, and "serve as a self-inflicted wound to the U.S. economy at the worst possible time."
But as is usually the case in these regulatory battles, cost estimates differ markedly depending on which side of the argument you stand. In its previous action on ozone, EPA found that a 60 ppb standard would yield $35 billion to $100 billion in health benefits by 2010. Agency spokesmen have called industry cost estimates greatly exaggerated.
Waters of the United States
Under the Clean Water Act, EPA and the U.S. Army Corp of Engineers are charged with protecting the integrity of the "waters of the United States." In the past, CWA had been interpreted to apply to "navigable waters" but there was concern that streams, wetlands and other smaller bodies of water should be included because they are connected to larger bodies of water downstream and pollution could migrate to them from these smaller water sources.
In March of this year, EPA and the corps released a proposed rule that sought to clarify what water bodies should be covered by CWA. EPA determined that some bodies of water be included as a category (adjacent waters, for example) while others would be regulated based on a case-by-case basis. The rule was prompted in part by two U.S. Supreme Court cases that had muddied the case law.
In October, EPA's Science Advisory Board weighed in on the technical underpinning for EPA's proposed rule. The board largely agreed with EPA's findings but stated that the connectivity between streams and wetlands and downstream waters should be viewed as a "gradient" rather than as connected versus not connected. Most observers don't expect the board's findings to have a major impact on the final rule.
Environmental groups say clarification of the law is needed to protect these smaller bodies of water that affect drinking water for 117 million Americans. They point to a series of water-related incidents, such as the January spill of chemicals into the Elk River that left 300,000 West Virginians without drinking water, as evidence that the CWA needs shoring up.
But a wide range of industry groups oppose the rule, arguing that inclusion of these water bodies greatly expands the scope of the act, will lead to a huge increase in expensive, time-consuming permitting and impose increased requirements for restoration and mitigation projects.
"If the proposed rule becomes final, EPA's revision of the definition of 'waters of the U.S.' would expand its regulatory jurisdiction to almost all waters of the U.S., including ditches, ponds and streams," said William Kovacs, senior vice president for Environment, Technology and Regulatory Affairs at the U.S. Chamber of Commerce.
Regulatory Reform and the Power of the Purse
With the midterm elections putting Republicans back into control of Congress, business groups are hopeful that what they see as the Obama administration's regulatory overreach can be tempered, or even derailed.
"As the president said, his 'policies were on the ballot' in this midterm election," NMA's Quinn commented after the elections. "The American people have registered their disapproval and are now looking for a fresh start with common sense approaches that can move the economy forward to benefit all Americans."
While critical of the EPA proposals, the Heritage Foundation also found fault with Congress for not asserting control over the agency and urged it to "use the power of the purse." It asserted that "Congress gave the EPA the regulatory power in the first place and should rein in the agency when it proposes bad or unauthorized policy."
NAM's Bertelsen said his organization was optimistic that a better atmosphere will now prevail in Washington where both Congress and the Obama administration can work to craft an energy strategy for the nation. "People came to the polls and said they want jobs and economic growth. These regulations are really counter to that," he said.
But other Washington observers expect a series of battles over the proposed major regulations. Ronald White, director of regulatory policy for the Center for Effective Government, says the Republican-controlled Congress will try a variety of tactics to defeat the new regulations, including more rigorous oversight hearings, decreased funding for agencies and legislative riders that prohibit agency action.
Don't expect many of these actions to be successful, says White. He expects the president to veto many of the anti-regulatory bills and the composition of the Senate will mean Republicans will not be able to override the vetoes.
"At this point, the administration views the next two years as an opportunity to highlight its legacy," says White. That means continued administration efforts, he says, to bolster environmental, food safety, health care and other regulations.
For manufacturers, that spells little relief from a regulatory maze that many say is harming U.S. competitiveness and sapping their ability to invest in their businesses.