EPA’s Gina McCarthy gave a speech to Resources for the Future defending EPA’s proposed carbon regulations on economic grounds. However, the crux of her argument is based on a logical fallacy that will be costly to jobs and the economy.
Here are two passages from her speech:
Climate action is not just a defensive play, it advances the ball. We can turn our challenge into an opportunity to modernize our power sector, and build a low-carbon economy that’ll fuel growth for decades to come.
Not only is global climate action affordable, but it could actually speed up economic growth.
In her mind, new mandates and regulations that end coal (and eventually natural gas) use in electricity generation will result in jobs and economic growth. McCarthy mentions that smart economists helped develop EPA’s carbon plan. However like her, they succumb to the “broken window” fallacy. This is the logical misconception that generating jobs and economic activity by breaking things is good for society.
In his essay, “That Which is Seen, and That Which is Not Seen,” the French economist Frédéric Bastiat tells the parable of the broken window:
Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"
Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.
Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade - that it encourages that trade to the amount of six francs - I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."
One unseen cost of EPA’s attempt to restructure the power grid, will be the shutdown of reliable coal-fired power plants. For instance, Duane Highley, CEO of Arkansas Electric Cooperative Corp. and Arkansas Electric Cooperatives Inc., told Arkansas Business he “would prefer to invest in scrubbers” for the 1,480-megawatt plant near Redfield, “and let it run for another 20 or 30 years” rather than shut it down.
What’s more, enormous investments that have already been made to many of these plants to make them meet other EPA standards. Take the Ferry Power Station in Hatfield, PA. The plant’s owner installed $650 million of scrubber technology in 2009, but closed it four years later because of more EPA regulations.
During a July 23 hearing of the Environment and Public Works Committee, Senator Deb Fischer (R-NE) summed it up when she said that EPA’s regulations will
force the premature retirement of efficient, low-cost coal-fueled generation; lead to the potential loss of billions of dollars in investments made over the last decade to make coal plants cleaner; require construction of higher-cost replacement generation; and increase natural gas prices.
Let’s not forget some of the significant costs that we will see. EPA estimates that its regulations will mean electricity price increases of six to seven percent nationally in 2020, and as much as 12% in certain places. There are also the job losses. The United Mine Workers expects over 152,000 jobs lost in the coal sector by 2035.
(We could have a clearer understanding of the proposed carbon rule’s job effects but EPA has failed to do the analysis.)
All these seen and unseen costs, and for what? Minimal global impact, as the Institute for 21st Century Energy’s Matt Letourneau notes:
The reduction in emissions from EPA’s rule would actually only decrease global emissions by 1.3%. Based on projections from the U.S. Department of Energy, the amount of carbon dioxide emissions that will be reduced from EPA’s power plant rule is equivalent to just 13.5 days of Chinese emissions in 2030!
McCarthy can puff up the economic benefits of EPA’s carbon regulations all she wants. By using a little bit of logic and looking at the facts, we can see her agency’s plan will be a millstone on the economy. Just as a concerted effort to break windows doesn’t benefit the economy, forcing the restructuring of the power grid is not a path to sustained economic growth.
Over 50 years ago, Leonard Read wrote a short story, "I, Pencil," that explains how no one person on earth has the capability of making a pencil all by himself. The late Nobel Prize-winning economist, Milton Friedman, popularized the story in his PBS television series, Free to Choose.
Just as no one person can make something as basic as a pencil, no one person or company can get oil or natural gas out of shale rock. It takes hosts of people and companies working together to make the materials and equipment and provide the services needed for shale development.
How many people exactly?
A report produced by IHS for the Energy Equipment and Infrastructure Alliance finds that in 2012, 524,000 people worked in the supply chain industries that support shale energy development, and they earned over $41 billion in earnings. IHS expects the number of jobs in these industries to grow to 757,000 with earnings reaching almost $60 billion by 2025.
The chart below gives you a sense of how extensive the supply chain network is that supports shale energy from when it comes out of the ground (upstream) to when it's delivered to a consumer (downstream).Shale energy development supply chain chart made by IHS. Materials
A lot of materials go into building an oil or natural gas well where horizontal drilling and hydraulic fracturing are performed (pipe, cement, sand). In addition, constructing pipelines and infrastructure needed to transport and store the energy require steel, cement, and other materials.Capital Goods
Equipment like cranes, trucks, drilling rigs, pumps, and welding equipment are used to construct wells, pipelines, and other infrastructure.
Here’s one example:
[T]hroughout the upstream and midstream sectors, earth-moving construction machinery is necessary to excavate impoundment ponds, prepare access roads, dig pipeline trenches, and prepare the site of a natural gas processing plant. Thus while the original equipment manufacturers benefit from unconventional development, so do the steel plate producers, metal fabricators, and machine tool shops that create the inputs for finished machinery that end up on upstream and midstream worksites.Construction and Well Services
For oil and natural gas wells, workers prepare well pads, drill deep into the ground, and construct the wells. For infrastructure, workers build pipelines, pump stations (for oil), and compressor stations (for natural gas), refining and export facilities, as well as roads and other public infrastructure.Professional Services
A host of professional services are needed: Civil and environmental engineering; waste disposal; land and right-of-way services; accounting; insurance; etc.Logistics
Until someone invents a Star Trek-like transporter that makes materials magically appear someplace, shale energy development depends on trucks and rail to move pipe, equipment, sand, and water.
An American Petroleum Institute survey lists more than 30,000 companies in every state and the District of Columbia that support oil and natural gas development. As the shale energy boom continues, job creation will also.
Peter Roff, a senior fellow at Frontiers of Freedom, writes in the Washington Examiner about EPA’s proposed carbon regulations and the effects of driving coal use into oblivion:
The proposed EPA regulations behind all this will change the system of power generation in fundamental ways; by the agency’s own estimates, nationwide electricity prices will increase 6 or 7 percent, in some cases as much as 12 percent.
Closing down coal-fired utility plants will drive up consumer costs because there isn’t a way to replace the base power load these plants generate. Consequently, ratepayers can expect sharp increases in their monthly bills and must prepare for the eventual reality that there may not be enough energy available on the grid to permit Americans to heat and cool their homes, power their businesses, or drive the manufacturing renaissance many business economists expect over the next five years.
Higher energy costs will mean added financial stress and increased energy insecurity for many Americans, concludes two Senators on the Energy and Natural Resources Committee. Senators Lisa Murkowski (R-AK) and Tim Scott (R-SC ) write:
Even in the land of energy plenty, however, too many Americans suffer from energy insecurity; they cannot afford the energy required to heat or cool their homes or secure other basic needs such as refrigeration.
The report finds, “Almost three million households or 7 million people will enter energy insecurity across the country if household energy costs increase by 10 percent.” And if home energy costs increase by 10%, “more than 300,000 additional households with over 840,000 Americans would be pushed below the poverty line.”
As a result, higher energy prices “often crowd-out or eliminate other household essentials including food, clothing, medical care, and education.” In addition, those enduring energy insecurity are more likely to pay to increase their personal debt and more likely to be late on bill payments.
Earlier this year, the Energy Department predicted that retail power prices will rise by 4% in 2014 and rise by 13% by 2020. Some of this is due to federal regulations. Imagine if EPA's proposed carbon regulations go into effect and push coal out of America's energy mix? Reduced energy diversity will mean higher electricity costs.
To mitigate the impacts of energy cost increases on Americans’ energy security, Murkowski and Scott recommend “encouraging—or at least not actively disadvantaging—the supply of low-cost sources of electricity and heating fuels, and taking steps to minimize cost increases arising from emerging energy resources.”
A good start would be for EPA to abandon its costly and ineffective proposed carbon regulations. Dan Byers, senior director for policy at the U.S. Chamber of Commerce's Institute for 21st Century Energy, told the Platts’ Coal Marketing Days conference in Pittsburgh, “The rest of the world wants electricity, and coal is going to deliver it. Global emissions are going to go up no matter what we do," he said.
We can't afford to push coal--an abundant, affordable fuel--out of the energy mix.
The research study, led by [the National Energy Technology Laboratory’s] Office of Research and Development, used natural and man-made tracers to look for evidence that fluid and gas in this area from the hydraulically fractured Marcellus Shale had migrated at least 3,800 feet upward to a gas producing zone of Upper De-vonian/Lower Mississippian age shale, midway between the Marcellus Shale and the surface.
Let me help you visualize the depths of these wells. Most water wells are 200-1,000 feet underground, while wells that undergo hydraulic fracturing can be a mile or more beneath the surface.
Researchers found that neither natural gas nor hydraulic fracturing fluid traveled upward through the rock.
The same day that the DOE report was released, a study published in the Proceeding of the National Academy of Sciences found that water contamination from natural gas wells was due to faulty well construction and not by hydraulic fracturing.
These studies support what current and former Obama administration officials have said about hydraulic fracturing’s safety. Secretary of Energy Ernest Moniz has stated, “To my knowledge, I still have not seen any evidence of fracking per se contaminating groundwater,” and former cabinet members Ken Salazar and Steven Chu have acknowledged that hydraulic fracturing is safe.
Simply put, hydraulic fracturing isn’t dangerous to water supplies. Science backs this up.
If there isn't excessive regulation, we have the ability to safely develop American's oil and natural gas abundance.
Today is the sixth anniversary of TransCanada’s first application to build the pipeline from Canada.
To mark the anniversary, the U.S. Chamber’s Institute for 21st Century Energy team and U.S. Chamber blogger Sean Hackbarth traveled the length of the U.S. route visiting ranchers, community leaders, chambers and business owners who have been patiently waiting for the pipeline to be built. (read some of Sean’s posts here, here, and here).
U.S. Chamber Energy Institute President and CEO Karen Harbert released this statement:
“For the past week, our team at the Energy Institute has been traveling the length of the Keystone XL pipeline in the U.S. and meeting with community leaders, ranchers, and business owners who have been waiting six long years for the pipeline to be built.
“The stories we’ve heard have only strengthened our resolve to push the Obama Administration to approve the pipeline. We visited a town in Montana that has been forced to delay construction of a new elementary school that was to be paid for in part by revenue from the pipeline. We met with ranchers who will be welcoming the pipeline on their property, but will be continuing their operations on reclaimed land. We saw firsthand the opportunities for small businesses, restaurants, hotels and workers throughout the communities near the pipeline. Today, we’re wrapping our tour up in Steele City, Nebraska, where a new pumping station would be built that will bring opportunities to that community.
“Of course, the benefits of Keystone XL will be felt far beyond the pipeline route itself. By supplanting oil from unfriendly nations with oil from Canada, America will be improving its national security. The daily supply of oil from Keystone will be used to fuel greater investment in our economy, creating jobs and much needed revenue at all levels of government.
“Unfortunately, this Administration’s decision making process has been guided by politics. No infrastructure project should be forced to wait this long simply to receive an answer—especially after receiving multiple favorable reviews by the permitting agency.
“So once again, we call on the Obama Administration to listen to its own State Department and the overwhelming majority of Americans, and approve the Keystone XL pipeline. America has waited long enough.”
Hundreds of thousands of words have been written on this blog about the potential economic, national security, and job benefits of the pipeline. So today, we'll let this infographic from Oil Sands Fact Check do the talking and provide us all with a little history lesson on the ups and downs of the pipeline approval process.
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