The Air Up There . . .

I read an interesting article this weekend in The Economist called Air-Quality Regulations: Don’t Hold your Breath. At issue is the EPA’s Cross-State Air Pollution Rule or CSAPR for short. CSAPR is set to take effect January 1st, 2012 and would require that power plants in 28 states (mostly east of the Mississippi with the exception of the Northeast) reduce their emission of sulphur-dioxide and nitrogen-oxide by 27% and 46% below their 2005 levels respectively. As you can imagine by the political bickering in Congress the past few years, this rule is bitterly opposed by at least 36 entities who have petitioned the US Court of Appeals for the DC Circuit to stop the EPA from implementing CSAPR.

So what is the dispute about and what does it mean for our economy? Those against the rule say that forcing power plants to meet these requirements would cost the consumer more in higher electricity bills as well as cut jobs at a time of 9% national unemployment because the utilities could idle some of their less efficient coal burning plants, costing jobs to plant technicians not to mention related industries such as mining. Others oppose the regulation simply because they see the federal government as interfering on state issues. Supporters of states rights argue that the government should outline a pollution reduction target and leave states to their own authority to meet the limits. The EPA claims that CSAPR will prevent 13,000-34,000 pollution-related premature deaths, and yield between $120 billion and $280 billion in health and environmental benefits annually.

Here is the way I see it. If the states wanted to create their own regulations, they would have done so by now. Why is the Northeast immune from this new law? Because those 9 states(ME, NH, VT, MA, RI, CT, NY, DE and MD) created a club called the Regional Greenhouse Gas Initiative (RGGI) that tackles the emission problem head on. By being proactive about this problem, these states now have wiggle room in terms of the decisions they can make. In addition, RGGI states show that not only are the emissions reductions working, but jobs are being created and $3 to $4 of benefits are being created by every $1 invested in the program.

In response to shutting down the old coal fired plant at the cost of jobs: do it! Shut that dinosaur down. And while you are shutting it down, start hiring Americans to build a new natural gas, wind, solar, geothermal or nuclear plant (or read my related post on distributed generation). This will create even more jobs as well as provide us with energy than doesn’t burn our eyes and harm our lungs. Side note: Don’t site a nuclear power plant on a fault line or frack under a watershed supplying drinking water to 19 million people – that is just stupid!

Climate change is one of the major problems facing our country, but another big one is health care costs. Any small business or large corporation will give you the same answer when it comes down to costs of employment – health care costs are absolutely prohibitive and are only expected to increase. Allergies, asthma, chronic obstructive pulmonary disease, and lung cancer are all results of air pollution. I see a trade off here – either face the cost now and comply with the new regulations, or keep the status quo and face higher health care costs later on.

If I can think of one inelastic product out there, it is electricity. When the price of gas rises, people drive less. They still get up and go to work each day, but they do drive less. If the price of electricity increases, you can be sure people will still turn on their coffee makers each morning and televisions at night. But hopefully the increase will make people think about turning the lights off when they leave a room. After all, if using electricity more sparingly prevents little Johnny from a visit to the emergency room, maybe he can stay in school long enough to graduate and earn a decent paycheck at the new clean energy plant instead of the old coal-fired one that almost killed him.

***UPDATE***: The American Economic Review just released a study on the air-pollution damages for several industries in the United States.  Its findings suggest that the economic loss from poor health due to pollution from coal fired plants is 0.8 to 5.6 times the market value of the power itself.  It doesn’t require an advanced degree to figure this one out.  A copy of the report is attached.