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Energy analyst warns of 'regulatory capture,' urges adaptation to climate change

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Energy analyst warns of 'regulatory capture,' urges adaptation to climate change

Much of the current energy policy debate pivots on the validity of climate science and the tension between environmental and economic priorities.

William Yeatman, an energy policy analyst with the Competitive Enterprise Institute, warns that there may be unintended consequences in allowing the U.S. Environmental Protection Agency to set the agenda on greenhouse gas regulations. He says adaptation to climate change, not mitigation of its effects, may offer the best outcome.

Yeatman spoke with SNL Energy to share his thoughts on energy policy in a recent e-mail exchange. The questions and answers below have been edited for clarity and brevity.

SNL Energy: Your organization champions free markets and limited government. From that perspective, what is the biggest threat to the energy industry today, particularly for fossil fuels like natural gas and coal?

William Yeatman: The biggest threat to the energy industry today is regulatory capture by environmental special interests. Most environmental statutes were enacted during the 1970s, at a time when intellectuals and policymakers alike believed that New Deal-era regulatory agencies had been "captured" by the industries that they regulated. In order to mitigate this regulatory capture, these environmental laws accorded then-nascent green litigation groups legal privileges to influence both implementation and enforcement of regulatory regimes. 

Fast-forward 40 years, and circumstances have reversed course. Environmental organizations like the Sierra Club and the Natural Resources Defense Council now operate with near-hundred-million-dollar annual budgets. It is from their ranks that political positions are filled in federal agencies. Most importantly, they now run sophisticated and expensive political campaigns, including heavy media buys and get-out-the-vote efforts. Thus, they are now big-time political players. In short, green groups are exhibiting virtually the same behaviors as industry in the 1970s, which, at that time, were pejoratively labeled as regulatory capture.

To be sure, if these groups' purposes were purely in the public interest, then regulatory capture wouldn't necessarily be a concern. But that's not the case. Instead, they've made a political cause of demonizing fossil fuels.

 

What do you think is right about the current climate debate, and what is wrong? And what is our best bet for addressing the issue of climate change?

To me, much of the climate policy debate is, unfortunately, akin to the famous Dickens character Mrs. Jellyby, who neglects her own children due to her obsession with philanthropy in Africa. There are 2 billion people enduring abject poverty and for them cheap energy is a solution. And yet, these fantastic passions in the West have been funneled into the mitigation of an issue, climate change, that's supposed to affect our grandchildren and great-grandchildren. To me, climate change is just one of many risks that we must manage, and it is, moreover, lower on my risk list than those issues that are unequivocally causing human suffering right now.

As for what's right with the climate debate, I think a positive development is that the public and policymakers are starting to gain an appreciation that there are costs attendant to any climate change mitigation policy. A misunderstanding perpetuated by green special interests and their political benefactors is that greenhouse gas emissions reductions will somehow stimulate the economy and create "green jobs," rather than depress it. It appears reality is starting to pierce this fog obfuscation. Last week, for example, the United Nations' Intergovernmental Panel on Climate Change estimated that climate change would cost 4% of the global gross domestic product in 2030.

What is our best bet to address climate change? I think it's adaptation because I believe mitigation to be either dangerous or impossible and the likelihood of catastrophe to be no more than that posed by the "population-bomb," "peak oil," "ecocide," supervolcanoes, asteroids, and any other past or future planetary threats.

First, mitigation carries costs. Indeed, it carries steep cost, and these costs carry harm. Namely, they inhibit wealth creation and poverty reduction. The threat with an all-out mitigation strategy is that the costly policies can do more harm than the underlying problem.

There's a second problem with mitigation, one that is an inevitable result of our international system of sovereign states. Climate change is a global matter. No one country, or even continent, can control global greenhouse gas output. "Stopping" climate change would cost trillions. These costs, in turn, would be shared primarily by 35 or so wealthy states. Here's the problem: There's absolutely no precedent for international burden-sharing of this magnitude, short of world war. And climate change, by its nature, can never achieve the alarm of a global battle. Historically speaking, then, climate change mitigation is an impossibility. 

 

What role do you think coal should play in U.S. energy policy, particularly as it relates to the issue of carbon dioxide emissions and climate change? 

Generally, I'm loath to endorse any positive energy policy, which are invariably derivative of special interests — i.e., rent-seekers or purveyors of ideology. Relative to market forces, energy policy as such is almost always sub-optimal.

However, if we are to have proactive, federal energy policies, I would much prefer if they originated with the country's representatives. To this end, I'm uncomfortable with President Obama's avowed circumvention of Congress to achieve his climate agenda. The EPA's greenhouse gas regime is significant policy. Yet the 110th, 111th and 113th [Congresses] had considered climate policy bills and decided not to adopt them. I'd like to see Congress check the president's agenda, but it seems that in today's world, party affiliation trumps institutional power.

 

You've written about the notion that using carbon capture and storage for enhanced oil recovery would actually increase carbon dioxide, or CO2, emissions. Can you say more about that? 

This is the great paradox of the EPA's carbon pollution standard: In practice, it would increase greenhouse gas emissions. The regulation would require all new coal-fired power plants to install carbon capture and sequestration, or CCS. In order for the regulation to survive judicial review, CCS must be "adequately demonstrated" and cannot be "exorbitantly" expensive. To clear these hurdles, the EPA's legal justification relies heavily on the fact that CCS will be made cheaper and more practicable by combining it with enhanced oil recovery — the practice of injecting high pressure CO2 underground to extract oil. 

I worked out a conversion equation to calculate the relationship between CO2 captured at the power plant and injected underground, and CO2 from the combustion of the recovered oil. The equation hinges on a dynamic metric known as the "utilization ratio," or the volume of CO2 injected per mass oil extracted. According to the conversion equation, every 1 kilogram CO2 captured at the power plant engenders 1.66 kilograms of CO2 emissions from combusted oil. 

I'd obtained the utilization ratio from a research professor at the University of Wyoming, and I ran the conversion calculation past utility pollution control engineers, who told me it checked out. Recently, The Associated Press's Dina Cappiello wrote a story about this, in which she referenced a peer-reviewed article claiming that the ratio was much higher, almost 4 to 1.

 

We've been hearing the argument by opponents of the U.S. EPA that the 2005 Energy Policy Act contains language that undercuts proposals for greenhouse gas limits. What do you think of that argument?

In the proposed rule, the EPA relies on three CCS projects in Mississippi, Texas and California to aid in the agency's "adequately demonstrated" determination. 

There are two sections of the 2005 Energy Policy Act that perhaps speak to the EPA's use of these three projects in its justification. One section of the 2005 Energy Policy Act would bar the EPA's use of any project that received "assistance" pursuant to the act from being the "sole" rationale for an "adequately demonstrated" determination. A different section would bar the EPA's use of any project that received "credits" from being "considered to indicate" an "adequately demonstrated" determination.

All three of the projects received assistance from the 2005 Energy Policy Act, but I doubt that will preclude the EPA's referencing them in the course of its justification. This is due to the fact that the provisions are terribly unclear. There's enough ambiguity, especially the phrase "considered to indicate," that I think the agency will get its way.

 

You have written about use of sue-and-settle legal tactics, which have become a major concern for many industries. What do you think is wrong with sue-and-settle?

Sue-and-settle is a term to describe the surrender of regulatory initiative by the EPA to environmental litigation groups. Its root cause is an overabundance of statutory deadlines.

Environmental enabling statutes are rife with deadlines. This is a problem for two reasons:

The EPA rarely meets its statutory deadlines. For example, the agency has missed 98% of its Clean Air Act deadlines pursuant to three core programs since 1993, by an average of five years. And environmental statutes authorize environmental groups to sue the agency in order to compel their compliance with a missed deadline.

Because the EPA is out of compliance with virtually all of its deadlines, it follows that establishing any deadline through litigation determines how the EPA deploys its limited resources. Of course, giving priority among regulatory initiatives is no different than effectuating policy.

This is the essence of sue-and-settle. The process starts when an environmental litigation group sues the EPA over a missed deadline. Rather than contest the suit and defend the agency's discretion, the EPA immediately enters into settlement negotiations. In fact, most of the EPA's regulatory responsibilities pursuant to the Clean Air Act are dictated by sue-and-settle litigation.