This is a stunningly good letter that was presented to the Hearing of the Texas House on the latest EPA insanity–the Clean Power Plan. Wanna know what’s wrong with the EPA, read Minick’s letter for a place to start.

Minick takes the EPA big plan apart and shows it to be a empty portfolio of nonsense and bad policy making.

Minick is an important voice for Business in Texas–an eloquent and knowledgeable man.

I highlighted some of the important stuff.

September 29, 2014

The Honorable Patricia Harless, Chairman
Committee on Environmental Regulation
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

RE: Environmental Protection Agency’s proposed Clean Power Plan under Clean Air Act Section 111(d)

Chairman Harless:

The Texas Association of Business (TAB) appreciates the opportunity to discuss the Speaker’s charge to the committee to study the Environmental Protection Agency’s (EPA) proposed Clean Power Plan. TAB is a broad-based, bipartisan organization representing more than 4,000 Texas employers and over 200 local chambers of commerce. As Texas’ leading employer organization for more than 90 years, TAB represents some of the largest multi-national corporations as well as small businesses in almost every community in the state. Our business members and local chambers of commerce have a vital interest in the outcome of any decision by EPA to fundamentally alter the management and operation of the state’s electric power system and the effects such a proposal represents for the reliability and cost of critical electric supply in Texas.

EPA’s proposal to impose existing source performance standards for greenhouse gas (GHG) emissions under Clean Air Act §111(d) is yet another in a series of rulemakings from EPA that regrettably departs even further from the cooperative partnership between EPA and the states that Congress envisioned in the passage of the Clean Air Act. The Act states clearly that air pollution prevention at its source is the primary responsibility of States and local governments. In addition to being inconsistent with the fundamental principle of cooperative federalism, the proposed Clean Power Plan is equally inconsistent with other specific provisions of the Clean Air Act. Beyond its questionable legal basis, however, the Committee should also be made aware that this rule, if enacted, will impose significant costs on Texas businesses and consumers, severely test our electric grid and reliability of electric service and effectively relinquish control of our power system to the federal government. Incredibly, even EPA’s own analysis shows plainly that this rule, intended to address climate change by reducing emissions of GHGs, will have no measureable effect on climate change.

Background and Description of the Clean Power Plan
EPA’s proposal to impose existing source performance standards for GHGs follows directly the failure of the current administration to move cap and trade legislation through Congress and is a well-recognized step in EPA’s long range plan to remove coal as a source of fuel for power generation in this country. An earlier step in that plan is the imposition of GHG performance standards for new sources. That rule, which will ensure that no new coal-fired power plants are built, was proposed in September 2013. This next step, proposed in June of 2014, will ensure the closure of many of the existing coal-fired plants. President Obama, in speaking to the San Francisco Chronicle in 2008 outlined without any confusion his plan for coal power:

“Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Coal-powered plants…would have to retrofit their operations. That will cost money. They will pass that money on to consumers.”

The Clean Power Plan bears a resemblance to another increasingly familiar aspect of rulemaking under the Clean Air Act – obscuring any technical justification or analysis of a proposed rule in more pages of background than can reasonably be read and understood by the average interested party, certainly any affected party with limited time and resources. In this case, the rule itself only occupies some 38 pages of text, but that is then followed by over 600 pages of preamble with references to some 350 footnotes. Then comes a lengthy regulatory impact analysis and multiple technical support documents and then references to some 620 supporting documents.

While those affected by the rule might hope to find at least clarity in the rule’s purpose and effect in this massive production, even many of those who are supportive of the rule have expressed concern and uncertainty as to what it means, how it will affect their jurisdictions and, perhaps most importantly, how it can possibly be implemented.

Basis of the Clean Power Plan Rule
Under the Clean Power Plan EPA proposes to impose performance standards for existing power plants for GHG emissions under Section 111(d) of the Clean Air Act. In the previous 40 years EPA has used this authority in approximately five cases, and arguably never for any major source of emissions. Section 111(d) allows EPA to establish performance standards for existing sources of emissions and requires that any standards imposed reflect emission limitations achievable through what is defined as a Best System of Emission Reductions (BSER). But in this proposed rule, EPA abandons any rational definition of both source and system in the context of what Section 111(d) actually authorizes. Under the Clean Power Plan, emission reductions would apply not to a source of emissions (a power plant) but conceivably to every element of the state’s entire electric power system.

Further stretching the authority of 111(d), EPA does not propose any system of emission reduction technology, but instead, argues that each state can reach emission reduction targets through a variety of measures, including:

1. Improving efficiency of coal-fired electric generators by 6%;
2. Increasing the operation of natural gas-fired electric generators to 70% of current capacity;
3. Increasing the contribution of renewable energy sources up to 25%; and
4. Increasing the reductions in power consumption through demand response by 9-12%
An obvious observation of these “suggested” paths to compliance with GHG emission limitations is that, while they may indirectly affect emissions, none of them is actually a “system” of emission reductions applied to a “source” of emissions. In other words, EPA proposes to limit GHG emissions by not requiring any direct control of the emission of GHGs at their source. Put another way, the agency is proposing a rule under Section 111(d) that imposes requirements in no way authorized under Section 111(d). Within very specific conditions, EPA has authority to limit emissions by determining an appropriate system of controls for those emissions at their source.EPA does not have the authority to re-design our entire system for the generation, transmission, use or conservation of electric power to indirectly impact the production of GHGs.

Target Emission Rates
The key to the Clean Power Plan is target emission rates that EPA has determined for each affected state. Again, these are not targets applicable to actual sources of emissions (electric power plants) but overall targets applicable on a state-wide basis. In fact, it is accurate to acknowledge that under a statutory provision that authorizes control of sources of pollution, EPA is proposing a target for emission rates that is simply applied to an entire state, and not to any one source of pollution.

Beyond the obvious concern with the underlying statutory authority being cited, a major concern with the states’ emission targets is that the massive submission and supporting documentation still do not reveal any apparent rationale for the emission rates that are proposed. The rates assigned to individual states vary substantially and for reasons that are very difficult to comprehend. Somehow, under a rule presumably intended to reduce the emissions of a pollutant that we are told has serious negative implications for public welfare, some states are allowed to actually increase emissions of GHGs. Some observations of EPA’s proposed emission reduction targets may help to illustrate the difficulty in understanding a valid technical basis:

1. GHG emission reduction targets for the states range from an 83% reduction (for Washington) to a 37% increase (for Rhode Island).
2. Washington must reduce GHG emissions by 83%, Oregon by 42% and California by 7%.
3. Texas must reduce emissions by 42% and Oklahoma 41%, while Kansas and Nebraska can increase emissions by 10%.
4. South Dakota must decrease emissions by 4% but North Dakota can increase emissions by 1%.
5. Idaho has a reduction target of 49%, Wyoming 31%; Montana can increase emissions 8%.
6. Mississippi faces a target reduction of 62%, but Alabama 32%.
7. 3%.Virginia must reduce GHG emissions by 35%, West Virginia 0%.
8. Tennessee must reduce GHG emissions by 20%; Kentucky can increase emissions by 3%.
These examples are only some of the observations that clearly raise far more questions than EPA’s proposal provides answers. The rationale of EPA appears to be an acknowledgment that each state is different and faces different challenges and opportunities for reducing GHG emissions. But in no provision of the Clean Air Act is EPA authorized to invent a plan for reducing emissions from existing sources without actually imposing requirements on existing sources and then allocate obligations to each of the states based on what in some opinion of EPA each state is capable of accomplishing. Beyond EPA’s questionable authority to impose such emission targets, it must also be recognized that the states on which fall the obligations to comply may lack much of the statutory authority to do what EPA outlines in its suggested “system” of emission reductions.

It must also be recognized that Texas is singled out for special treatment under this proposed rule. While Texas’ required percentage reduction in GHG emissions is not as large as some states (42%), when applied to the actual magnitude of Texas’ electric generation capacity the figures become very revealing of the real impact of the rule. Texas is clearly the largest producer and consumer of power in the U.S, but that status is merely a reflection of Texas’ position as a producer of fuel, manufactured goods and other products that meet the needs of the other states and our global trading partners. Under the Clean Power Plan, Texas is far and away the most significantly affected state:

• By 2030, Texas must reduce coal-fired electric generation by over 72 million megawatt hours (MWH), Florida is a distant second at just over 40 million MWH.
• Texas’ required GHG reductions by 2030 are almost three times greater than those required of second place Florida and dwarf the requirements for any other state.
• To comply, Texas must reduce its coal-fired electric generation by over 53%; Indiana and Kentucky, the two closest states to Texas in terms of coal-fired generation, must reduce their generation from coal by 4.8% and 1%, respectively.
• Texas leads the nation in the production of renewable energy. But by 2030, Texas must increase its use of renewable energy almost five times as much as the state closest to Texas in renewable energy capacity, California.
The significant variation and seemingly random allocation of emission targets to the different states, and certainly the significantly greater impact of the rule on Texas, are clearly impacts that demand a far more detailed and reasoned explanation before this rule receives any further consideration by EPA.

Costs and Benefits of the Clean Air Plan
There is no question that implementation of the Clean Air Plan will significantly affect the electric generation industry and consumers of power, from the largest industrial user to individual residential customers. The U. S. Chamber of Commerce has estimated compliance costs at approximately $50 billion. Other estimates of industry compliance costs are as “low” as $28 billion. These compliance costs to the electric industry are distinct from the actual costs to consumers which has been estimated to be a loss in disposable income of over $585 billion through 2030. Cost to manufacturers and others who use natural gas for purposes other than electric generation will also increase significantly as natural gas prices are projected to increase up to $50 billion. In addition to dollar impacts, the rule will result in some 178,000 lost jobs per year. Less easily quantified, but equally important, is the potential impact of a rule that will significantly put at risk the reliability of Texas’ electric grid, the failure of which can have extremely dramatic financial impacts, as well as public health and safety impacts.

One would assume that such a rule, with the potential for significant, negative economic consequences, would have to clearly provide benefits to public health and welfare at least as great, or even greater than the costs to justify serious consideration and certainly formal proposal. Quite surprisingly, the dramatic economic costs and potential risks to our electric power system will provide virtually no benefit whatsoever. EPA’s own analysis shows that the proposed rule will affect no more than .18 percent of global GHG emissions and offset the huge costs of its implementation by reducing global temperatures by between .01-.02 degrees C. and preventing a projected sea level rise of .016 inches.

EPA attempts to make up for the almost absurd lack of simple economic justification for the rule by suggesting that reducing operations and emissions from coal-fired power plants will have ancillary public health benefits. Even if such an unsupported position were rational, it is beyond reason to suggest that sufficient public health benefits could accrue to offset the significant costs of this rule. But the reality is that for several years and throughout EPA’s pursuit of its current air quality and energy policy agenda, the agency has continued time and again to cite ancillary benefits from reductions in emissions (e.g., PM2.5) where no public health benefit from the direct effect of the rule in question can be cited. The Clean Air Plan is simply the latest in a long line of air quality rulemaking where no public health benefit can be directly attributed to the pollutant the rule is intended to address.

Perhaps even more significant as a critique of EPA’s cost analysis is the fact that the cost/benefit equation ignores (as it does for essentially all such rules) the negative public health impacts of reducing the disposable income of those who are affected by the rule.This rule if implemented will significantly impact the costs of electricity. That cost, particularly when borne by lower income ratepayers, will reduce the ability of those ratepayers to afford other essential goods and services that directly affect their health and welfare, including medical care, medicine, adequate food and housing and the expenses required to be sufficiently educated and prepared to acquire and maintain employment. The strongly positive correlation between income and public welfare and longevity has been well established and any cost/benefit analysis that ignores it cannot be considered to be valid or credible.

Other Impacts on Texas
It has been suggested by many in support of this rule that Texas should share that support due to the positive impact the rule will have on demand for natural gas, particularly as the prices for natural gas have declined and the incentives for more production have weakened. There is also at least the implication that Texas can benefit from this rule by simply building more gas-fired electric generation and easily mitigate the loss of any coal-fired facilities, while simultaneously benefiting from the economic effects of increased gas production. Missing from this presumptive analysis is the proper recognition of the role Texas’ competitive deregulated retail electric market plays in any theoretical scenario of how this state would attempt to implement EPA’s suggested methods of compliance. In Texas the Public Utility Commission, perhaps unlike in most other states, cannot simply set a price for electricity that will provide an incentive to build new gas-fired power plants to replace coal-fired plants. It is entirely uncertain that Texas’ electric market structure will be able to react as EPA assumes it can under any requirement to replace coal-fired with gas-fired generation.

The assumption that Texas can increase natural gas electric generation while benefiting from increased natural gas production also ignores the potential impact of other air quality rules being promulgated by EPA. The proposed reduction in the ozone national ambient air quality standard (NAAQS) can potentially bring large areas of Texas, including the major oil and gas production areas, into nonattainment status for ozone. Without a clearer picture of what a revised ozone NAAQS will be, what areas will be determined to be nonattainment and how such designation and subsequent ozone control measures will affect natural gas exploration and production, availability and price, it is impossible at this time to make assumptions that can dispel the many legitimate concerns about the loss of coal-fired electric capacity in Texas.

Conclusions
EPA’s proposed Clean Power Plan is poorly supported by current law and suffers from a thorough lack of technical and financial justification. It truly is a rule that on its face will have enormous costs and virtually zero benefit. It fulfills the administration’s goals for a cap and trade program by making cap and trade the only viable option for some states who simply cannot reengineer their electric power systems. In fact, the proposal will conceivably reward those states that have some type of cap and trade program by enabling those states with marketable credits to sell to other states, essentially establishing a wealth transfer from coal states to non-coal states. The proposal further supports the anti-coal agenda by imposing de facto federal renewable energy standards and federal energy efficiency standards – all in one rule.

It is appropriate to question EPA’s motives in proposing a rule that has such significant questions as to its legal foundation and for which the cost/benefit analysis so clearly shows that there are no benefits. Even the EPA leadership appears somewhat uncertain as to exactly what this rule is intended to do. In testimony before the Senate Public Works Committee, EPA Administrator Gina McCarthy stated:

“The great thing about this [111(d)] proposal is that it really is an investment opportunity. This is not about pollution control. It’s about increased efficiency at our plants, no matter where you want to invest. It’s about investments in renewables and clean energy.”

However, Acting Assistant Administrator for Air and Radiation, Janet McCabe, before the House Energy and Power Subcommittee described the same rule quite differently:

“Chairman Upton, this is not an energy plan. This is a rule done within the four corners of 111(d) that looks to the best system of emission reduction to reduce emission… The rule is a pollution control rule, as EPA has traditionally done under section 111(d).”

If EPA admits that a rule to benefit climate change has no effect on climate and is yet still unclear as to what the rule is for, it would appear prudent to postpone any further consideration at this time.

Thank you for the opportunity to appear before the committee and share our thoughts on this subject. Please contact me at 512.637.7707 or sminick@txbiz.org if you have questions or need additional information.

Respectfully,

Stephen Minick
Vice President for Governmental Affairs
Texas Association of Business