Clean Air Transport Rule: a silent, but substantial threat
By M. Ray Perryman
It’s no secret that the U.S. Environmental Protection Agency (EPA) and the state of Texas have had their share of disagreements regarding the best way to promote clean air and secure Texas’ energy future. Reasonable people often have legitimate differences about the path toward achieving laudable goals. However, a recently intimated EPA action poses a direct and imminent threat to Texas’ economic success. Worse, it’s based on hypothetical scenarios that do not reflect actual conditions and on assumptions relating to power supply operations that are simply not feasible. The threat is very real, and the consequences are quite severe.
To be specific, the EPA is currently finalizing a “Clean Air Transport Rule” designed to limit the impact of sulfur dioxide and nitrogen oxide emissions across state lines. The rule is intended to require emission reductions from states whose power plants contribute to non-attainment in downwind states. Texas was included in the proposed rule for nitrogen oxide during ozone season. However, the EPA’s modeling showed no significant impact from Texas sulfur dioxide emissions on other states, so Texas was, appropriately, not included in the proposed year-round rule for sulfur dioxide emissions.
Despite this fact, it now appears likely that the EPA will change course and include Texas in the Clean Air Transport Rule for sulfur dioxide emissions. If this action indeed moves forward, Texas could face enormous disruptions, including electricity rate increases of $1 billion a year, lignite mine closures, a reduction in power production, and substantial ripple effects throughout the entire economy. The result would be the loss of thousands of jobs and decreases in state and local tax revenues, as well as a greatly reduced reserve margin of electric capacity to deal with unforeseen circumstances.
As noted, Texas was not originally included in this process, because sulfur oxide levels in the state do not materially affect other areas. Thus, this 11th-hour change comes without the benefit of any analysis or input from the groups who know the Texas electric industry best. In other words, Texans were not given the opportunity to participate in the legally required public review and comment process.
The emission reductions mandate that the EPA is considering is disproportionately punitive to Texas compared to other states. Texas would be required to make nearly half of the nationwide sulfur dioxide reductions required by Clean Air Transport Rule despite the fact that the downwind states are presently in compliance with mandated standards. Texas’ inclusion is based on flawed assumptions. For example, the EPA incorrectly assumes that Texas plants can easily and immediately (by January 2012) switch from local lignite to coal mined and imported from other states. Apart from the technical and pragmatic issues involved, approximately 3,000 Texans are employed directly in the lignite-mining sector. The overall impact of this activity includes more than $1.3 billion in annual gross product and almost 14,000 permanent jobs. It also provides approximately $71 million per year ($142 million per biennium) in state revenues and is the lifeblood of several small communities.
Over the last 10 years, Texas has worked hard to achieve a 33-percent reduction in sulfur oxide emissions. This rule would require a larger relative decrease from current levels in just six months.
The only practical way for Texas to comply by the 2012 date would be for generators to stop operating the affected units for most of the year, leading to the loss of thousands of jobs, the closing of lignite mines, serious risks to electric reliability, and substantial rate increases. The losses from three plants in East Texas alone would be more than $400 million in annual output and more than 3,100 jobs (over and above those at the mines).
Additional repercussions would include diminished property and sales tax revenues, which would negatively impact local governments and schools. Rate hikes would increase the cost of living and working in Texas, and future locations and expansions would be in jeopardy. One of the key things making Texas a juggernaut for economic development and the envy of the world is a competitive wholesale power market that has assured a large and diverse supply of electricity.
Texas should not be part of this rule. It comes at an enormous economic cost and will have no impact on the ability of other states to remain in attainment. They are in compliance now and would only fail to be in the future if they chose to increase their own emissions as hypothesized by the EPA. Mere months before the compliance deadline, the stakes are too high to impose these measures without adequate consideration. Texas has much to lose, and no one else seems to have anything to gain.
Dr. Perryman is president and CEO of The Perryman Group, www.perrymangroup.com.
He also serves as Institute Distinguished Professor of economic theory and method at the International Institute for Advanced Studies.