“Government never furthered any enterprise but by the alacrity with which it got out of its way.”
— Henry David Thoreau.
Thoreau was prescient. If the U.S. government doesn’t get out of the way of the energy and manufacturing industries, or at least make less onerous the proposed rules and regulations that could strangle the industry, we will suffer a self-inflicted wound to American prosperity, a wound that will affect current and future generations.
Here’s what’s at stake.
America’s energy sector is booming and spearheading an economic rebound. Analysts at IHS Global Insight predict that during the next two decades, the energy industry is expected to make more than $5 trillion in new capital investments and create more than 3.5 million jobs.
Investors are excited as well. A recent headline on the financial website The Street read, “U.S. Energy Boom Will Lift Economy and Stocks.” This was the case last year, when the energy industry contributed $283 billion to the nation’s gross domestic product and boosted household incomes by $1,200 per capita, according to IHS.
The benefits of increased oil and natural gas production will flow downstream to chemical manufacturers, the construction industry and the myriad manufacturers that use petrochemicals in their products. Chemical manufacturers are already planning dramatic investments in the Gulf Coast region. More than $80 billion in petrochemical infrastructure and related projects have already been announced. Railroads are shipping more and more oil (partly due to lack of pipeline expansion).
No one thing will destroy our energy future, but combined, various proposed rules and regulations will increase costs to the point that natural resource development will have to slow.
What are the rules and regulations?
New Source Performance Standards. The EPA is seeking to regulate greenhouse gas emissions by electric utilities and refineries under NSPS provisions in the Clean Air Act. This is problematic, as the Clean Air Act was intended to reduce pollutants, not carbon emissions. Such a move could create significant electricity cost and reliability issues for domestic manufacturers. The EPA also plans to start regulating fuel, and possibly petrochemical manufacturers, after it has completed its utility rules. The EPA’s attempt to find any sliver of regulatory power available will certainly help derail America’s energy boom and manufacturing renaissance.
Revised ozone national ambient air quality standards. Current air quality standards, most recently revised by the EPA in 2008, are already quite strict and difficult to meet. But the EPA may further tighten standards by as much as 20 percent, creating an impossible regulatory framework for energy providers. This unreasonable burden, potentially so strict that virtually the entire United States would be in violation, could lead to the loss of millions of jobs and cost the American economy trillions of dollars while slamming the brakes on the country’s energy renaissance.
Tier III fuel standards. In March, the EPA proposed new fuel standards that require refiners to remove trace amounts of sulfur from gasoline. In 2004, the industry already removed 90 percent of sulfur in gasoline. Tier III standards necessitating further sulfur removal will impose the same cost as the 2004 sulfur reduction, with little, if any, additional benefit. In fact, the Tier III rule will likely increase net greenhouse gas emissions, as refiners will be forced to consume more energy to comply with this unnecessary and complicated rule. Such a result puts fuel manufacturers in conflict with the EPA’s greenhouse gas regulations. The impact of these standards will certainly be felt by consumers, as well: Petroleum prices will jump by as much as 9 cents per gallon.
Beyond the sheer cost and complexity of these regulations, what is perhaps most frustrating is the EPA’s ignorance of the huge strides the energy and manufacturing sectors have made in reducing emissions. Refineries have reduced emissions by 13.5 percent since 2006. During the same period, the electric power industry’s emissions have declined by 10 percent, and across the entire industrial sector, emissions have declined 6 percent since 2005.
This progress comes from technological innovation that increases efficiency, but it’s also the result of a concerted effort by industry to invest in efficiency. The refinery sector alone has spent $132 billion since 1990 to improve its environmental performance.
The EPA’s power grab will have terrible consequences for America’s economic bright spot. Should the regulatory state continue to run amok, our energy and manufacturing booms will subside, and the United States will have to once again look abroad for its resources, rather than producing them domestically and selling the surplus to the rest of the world.
Charles Drevna is president of the American Fuel and Petrochemical Manufacturers.