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IER: Environmental regulations may increase living costs

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Hydrocarbon Engineering,

President Obama has vehemently pursued government regulation of energy through the Mercury and Air Toxic Standards, the Clean Power Plan, the ozone rule, and CAFE standards. Currently, the administration is pursuing regulations on methane, heavy trucks, and aircraft emissions. Americans are subject to trillions of dollars in costs with pre-existing regulations, which may potentially rise because of these, and other, regulations before Obama's term ends.

The EPA’s Mercury and Air Toxics Standards rule went into effect in April 2015. The rule requires about 600 facilities to reduce mercury emissions. The EPA predicted that this rule will have an annual cost of US$9.6 billion, in exchange for about US$4 - 6 million in benefits from reduced mercury emissions. However, the US$9.6 billion in costs looks optimistic. A study by the National Economic Research Associates found the rule to have an economic cost to consumers of over 2.5 times as much, US$25.6 billion/y. This regulation alone caused an estimated 30% of coal plant retirements in 2015.

The EPA’s Clean Power Plan (CPP) requires a 32% reduction of carbon dioxide emissions from the electric generating sector below 2005 levels by 2030. A NERA analysis projects that the plan would cost consumers as much as US$39 billion/y and that an additional 47 000 MW of coal fired capacity would be retired, posing a major threat to electric reliability. Despite these impacts, the EPA’s CPP would have virtually no effect on climate change, reducing atmospheric carbon dioxide concentration by less than half of a percent and lowering global average temperature by two hundredths of a degree.

Despite the leadership claims that the EPA cites for the US and China’s promises to curb coal use, China issued permits to build 155 coal-fired plants (123 GW) in the first nine months of 2015. India also plans to double its coal production by 2020. As a result, the US most likely will be ‘going it alone’ among the largest greenhouse gas emitters in the world, targeting existing electricity sources while others increase their consumption of energy and emissions of carbon dioxide.

The Environmental Protection Agency (EPA) now requires ozone levels at 70 parts per billion (ppb) by 2025, down from 75 ppb that was adopted in 2008. Despite many areas still being out of compliance with the previous standard, the EPA will require metropolitan and state governments to comply with the new stricter standards. If the region does not obey, the federal government can withhold highway funding. The EPA’s new proposed ozone standard is expected to cost US$1.4 billion/y, according to the agency’s own estimates. Others suggest the actual costs will be much higher, and that the ozone regulation will be the most expensive regulation ever developed by government. This is despite the fact that EPA’s own analysis shows ozone emissions have been reduced by over 30% since 1980.

In 2012, the Obama Administration enacted new fuel efficiency standards (CAFE standards) that doubles car and truck fuel efficiency by 2025, with sales of light duty vehicles reaching an average 54.5 miles/gal. To achieve this, automakers will have to reduce the weight of vehicles, use more aerodynamic designs and decrease engine size, as well as manufacture more hybrids and electric vehicles. However, even if auto manufacturers reach an average of 54.5 miles/gal., most cars and trucks will get lower mileage in real life driving.

The Obama Administration estimated the new standards would reduce oil consumption by 12 billion bbls over the course of the programme and that these rules would cut greenhouse gas emissions in half by 2025, eliminating six billion t over the course of the programme. The Obama Administration, however, does not highlight that these rules will increase the cost of new vehicles, costing thousands of dollars more than what they will save on fuel, which will shut out almost seven million people from the new car market.

This summer, the EPA and the Department of Transportation are planning to finalise similar standards for heavy duty vehicles. The new standards will require tractor-trailers, vocational vehicles (such as UPS trucks), and super duty trucks and vans (such as the Ford F-250) to almost double their fuel efficiency by the end of next decade. These rules will also be the first to require not just more efficient tractors, but aerodynamically improved trailers.

In 2010, the average efficiency of heavy duty vehicles was between six and six and a half miles/gal., with the best vehicles getting up to seven miles/gal. By 2027, the average new tractor trailer would get between nine and 10 miles/gal. Semis produce about two thirds of the greenhouse gas emissions from this class of truck.

The EPA first announced its plans to limit methane emissions by setting rules regarding how much methane can be emitted by all new oil and gas operations in the US. Then, in March, President Obama announced that his EPA will begin developing regulations to reduce methane emissions from existing oil and gas sources. Oil and gas companies will need to find and repair leaks in new equipment, capture natural gas from the completion of hydraulically fractured oil wells, limit emissions from new and modified pneumatic pumps on well pads, and limit emissions from several types of equipment used at natural gas transmission compressor stations. Besides the EPA rulings, the Bureau of Land Management will limit how much methane can be ‘flared’ by oil companies when they are producing natural gas from both new and existing wells on federal lands.

These rules are planned despite the oil and gas sector having reduced methane emissions from natural gas production by 38% since 2005 while increasing natural gas production by 26%. According to the EPA, methane emissions from hydraulically fractured natural gas wells are down 79% since 2005. The industry achieved this by capturing the gas at the wellhead immediately after well completion, using better control devices (low bleed or no bleed pneumatic valves), and using advanced monitoring technology systems to identify sources of methane emissions.

In February, the International Civil Aviation Organisation (ICAO), the UN agency that oversees passenger flights, determined limits on carbon dioxide emissions on new airplanes delivered after 2028. The new standards require a 4% reduction in fuel consumption of new aircraft beginning in 2028 compared with 2015 deliveries. They also set new limits for airplanes in production that are delivered after 2023. Depending on the size of the aircraft, actual reductions would be from zero to 11%, with a bigger emphasis on larger commercial airplanes.

The proposed standards must be formally adopted by the civil aviation council of 36 member states in June of this year, and then endorsed by the council’s assembly in October. They then need to be enacted by each member state in its national legislation or regulation. Once the ICAO finalises the rules, the EPA will likely issue engine efficiency rules in line with the ICAO standard, which can be expected by the end of this year. One upshot of this regulation will be more expensive planes and ticket prices for travellers.


The EPA’s onslaught of regulations will result in increasing energy prices, car prices, truck prices, plane prices and overall travel costs. These increased prices will produce little or no benefit as other countries will just emit more greenhouse gases than the US can save. Furthermore, the increase in energy prices essentially functions as a regressive tax. Higher energy costs affect low income households disproportionately, because these households spend a higher percentage of their budgets on energy costs.

Adapted from press release by Francesca Brindle

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