The Impact of GHG Regulations

Kyle Isakower
Posted February 10, 2011

On January 2, 2011, the Environmental Protection Agency (EPA) began regulating greenhouse gas (GHG) emissions from stationary sources under the Clean Air Act. EPA's stationary source regulation risks significant adverse impacts on investment, expansion and job creation in today's fragile economy, raises significant legal concerns, and places a tremendous regulatory burden on state resources.

These regulations will eventually impact as many as six million of America's industrial facilities, power plants, hospitals, and agricultural and commercial establishments. In order to comply, businesses would need to obtain permits before moving forward with construction and modification. EPA has never estimated the cost to stationary sources.

EPA has recently released guidance to permitting authorities on determining best available control technology (BACT) for compliance. However, the guidance still creates uncertainty over what technologies will be required to satisfy the permits and leaves huge questions as to engineering design and project cost assessment for new construction and modification of existing facilities. The economy and jobs were major themes in this year's elections, and the regulatory uncertainty of this new regulation creates delay, which could result in loss of investment and ultimately jobs.

The American Council for Capital Formation (ACCF) has investigated the likely impact of EPA's new GHG regulations on the cost of capital and U.S. investment. ACCF estimated that the pending GHG regulations would "increase the risk premium added to the firm's cost of capital by 30% to 40%." ACCF further states that "using conservative estimates of elasticity of investment in response to changes in the cost of capital, it seems likely that U.S. investment could decrease by 5% to 15% over the 2011-2014 period."

Assuming 25% of the total investment occurs in the sectors identified by EPA in their assessment of the "Tailoring Rule," annual capital investment could decline by $25 to $75 billion. Using these inputs in IMPLAN modeling, API found that implementation of EPA GHG regulation under the CAA could:

• Result in employment losses between 475,000 to 1.4 million relative to a baseline without the new regulations.
• Impact all sectors of the economy including up to an estimated 200,000 manufacturing jobs.
• Reduce total U.S. GDP by $47 to $141 billion annually.

More information on the impacts can be found on API.org.