DODD-FRANK COMMENTARY

President Obama is urging Congress to approve trade agreements that would put people back to work and energize our nation’s economy. But he also wants to clamp additional taxes on the oil and natural gas industry, partly by eliminating a tax credit for royalties paid to foreign governments. That could send billions of dollars and thousands of jobs to foreign competitors who don’t face similar taxes. Now, the Securities and Exchange Commission (SEC) is on the verge of implementing a provision of the Dodd-Frank financial reform law that would require any oil and natural gas company or hard-rock mineral company to disclose in its annual report payments to the United States and a foreign government. Such payments include taxes, royalties, license fees, production entitlements and bonuses. In other words, the provision covers just about any payments that a company makes in foreign trade. Together, more taxes and government regulations will undercut the U.S. oil and gas industry, one of the few sectors recording major job gains. Experience shows that eliminating tax credits would encourage some companies to outsource their work to countries with lower taxes, and it could also lead to higher prices for gasoline, diesel and other petroleum products. The SEC is scheduled to approve the disclosure provision on 22 August. It requires oil and gas and hard-rock mineral companies to make public a summary of expenses by country and possibly by project. The statement of financial payments must be submitted to the SEC and published in a company’s annual report where it can be accessed by foreign competitors as well as the public at large. This is information that until now was considered confidential and proprietary. The purpose of the disclosure provision is to increase transparency in the oil and gas and hard-rock mining industries. But in practice, it will subject U.S. to a lot of red tape and costly compliance obligations. Never mind that these companies are already subject to the Foreign Corrupt Practices Act that prohibits payments to foreign officials for the purpose of obtaining or retaining business. U.S. energy companies face tough competition from foreign national oil companies that don’t have to comply with such disclosure requirements, and that could put them at a disadvantage when bidding for contracts. State-owned companies such as Saudi Aramco, Russia’s Gazprom and the China National Petroleum Company control 80% of the world’s oil resources. Non-SEC registered companies would have a great advantage in forming joint ventures with national companies that have ready access to capital. The big question is whether the SEC will require disclosure by project. That would harm companies large and small, jeopardizing thousands of jobs, while contributing little information that isn’t already made public under other disclosure requirements. It is bad enough for a government regulation to be inordinately expensive or to be ineffective-it certainly should not be both.

Is it possible that we won’t have enough power plants to meet growing demand for electricity? Not without absurd compromises. Not without giving into the anti-coal environmental zealots so that whatever it is we try
To do jeopardizes electric-power reliability. Or are we just going to depend on wind and solar energy to satisfy our electricity needs?

Take the U.S. Environmental Protection Agency’s proposal to establish a maximum achievable control technology standard for mercury and other hazardous air emissions, which was issued in March. It would require utilities to install equipment that is prohibitively expensive or, in some cases, doesn’t yet exist. Utilities would have three years to comply with the standard. But that is not enough time to design and install the necessary emission controls. According to a study done for the utility industry, the combination of this rule and another aimed at reducing nitrogen and sulfur dioxide emissions by 70 per cent by 2025 could force the retirement of as many as 140 coal plants, greatly increasing the cost of electricity.

Do electricity ratepayers have any rights? Of course. But it is up to the EPA to balance those rights against the public-health benefits from curtailing emissions. And it is also EPA’s responsibility before issuing proposed regulations to work together with the Federal Energy Regulatory Commission (FERC), which is charged by law with ensuring generation reliability, to make certain the constraints do not jeopardize electric-power production. But that is not being done.

In letters to Senator Lisa Murkowski (R-Alaska) of the Committee on Energy and Natural Resources,
FERC Chairman Jon Wellinghoff and FERC commissioners clearly stated that no formal assessment has been made of the impact the air-quality regulations would have on the nation’s ability to meet the electricity needs of American households and businesses.

Senator Murkowski said that this is a serious breach of regulatory responsibility. Some energy officials believe the regulatory pendulum has swung too far toward EPA and that the Agency is riding ruthlessly over the public interest.

With the nation’s economy stagnating and 14 million Americans out of work, we can ill-afford regulatory actions that would make matters even worse. Yet EPA is pursuing a no-holds-barred regulatory strategy aimed mainly at coal plants that supply more than half of the nation’s electricity. Those tempted to think that natural gas can replace coal in electricity generation without an adverse effect on the economy should think again. Though natural gas is cheap now, you can be sure that its price will rise sharply as the use of gas increases and the U. S. uses liquefied natural gas (LNG) terminals to export gas to Asian markets. Several LNG terminals are being modified for precisely that purpose.

We can look back to the 1980’s when natural gas prices rose precipitously and those gas companies that had contracted to supply low cost fuel to both electric generation and the chemicals/plastics industry had to declare bankruptcy to discharge those contracts. Natural gas has proven that is too subject to volatility to rely upon it for long-term needs such electric generation and the operation of chemical/plastic facilities. Natural gas is, by its very nature, a fuel that is better suited for short term uses. Reliance upon natural gas for long-term needs has been shown to be problematic.

So it is fair to ask if EPA has calculated the cumulative cost of stricter air-quality standards. A half-dozen major regulations are in the hopper. For instance, the EPA is preparing to regulate carbon dioxide and other greenhouse gas emissions from power plants and large industries. It is planning to issue tougher limits on smog-causing ozone, an action that the agency itself estimates could cost the economy as much as $90 billion annually by 2020. It is considering regulating coal ash as a hazardous waste, would deprive the construction industry of a valuable resource used in road construction and cost tens of thousands of jobs. And it is preparing to mandate the use of expensive cooling towers at new and existing power plants, which would cost an estimated $300 million per coal fired power plant.

Clean air is a worthwhile goal. But electric utilities have made great strides since passage of the landmark Clean Air Act of 1970. Though the use of coal has tripled since I graduated from the WV School of Mines, power plant emissions are down by more than 70%. Acid rain is no longer the issue that it once was. And emissions of nitrogen oxides have been curbed.

The next time a factory in Virginia closes down due to high energy costs; ask yourself if you would have forced utilities to curtail the use of coal. Then maybe it will be time for the pendulum to start swinging back.

EPA OP ED

The U.S. Environmental Protection Agency (EPA) is rolling out a regulatory agenda that will stunt economic recovery and devastate our manufacturing sector.

In January, EPA is going to begin regulating carbon dioxide and other greenhouse gas emissions from the nation’s largest power plants and industrial facilities. EPA says that its action is necessary to prevent climate change. But EPA is doing this without regard for its effect on the economy and without approval from Congress, since the Clean Air Act says nothing about curtailing green house gas emissions.

EPA has picked the worst possible time to impose new restrictions on a key part of the nation’s economy. We are struggling to recover from the deepest recession since the 1930’s, but EPA’s plan will make matters more difficult by jacking up electricity prices. The result will be an unwanted and dangerous burden on businesses and consumers when our national priority should be to reduce joblessness and raise state and local revenue.

Under EPA’s regulations, utilities and manufacturers must adopt the best available control technology. But it’s not clear to anyone what that is. It could mean raising energy efficiency at a manufacturing facility or requiring a coal plant to switch to natural gas in order to reduce carbon dioxide emissions. In other cases utilities might be ordered to shut down a well-performing power plant that uses fossil fuels, to be replaced with power from less efficient renewable energy.

These mandated upgrades, closures and replacements are going to be wildly expensive and the cost is going to be passed directly to consumers and businesses through higher electricity bills – tens of billions of dollars in higher bills.

Furthermore, the economic burden brought on by EPA’s regulations will not be shared equally across the country. The states that get the largest portion of their electricity from fossil fuels will be forced to shoulder the heaviest load. Of course, those states that depend most on fossil fuels for electricity generation also happen to home to the core of America’s manufacturing sector.

EPA’s regulations could do the greatest harm here in the Virginia’s and in the Midwest states like Indiana, Ohio and Michigan that have large manufacturing facilities that depend on the availability of cheap coal. When the regulations take effect, electricity prices will soar, increasing the cost of products. Companies will be less competitive in the international marketplace and inevitably, some factories might be forced to close. How many Americans have to be added to the unemployment lines before Washington bureaucrats realize their mistake?

What is more, EPA’s plan to reduce emissions is fatally flawed because the agency is pursuing an agenda for carbon mitigation that was hatched without cooperation from other countries. Even those who adhere to global warming science recognize that atmospheric concentrations of greenhouse gases can only be reduced through international cooperation – particularly cooperation from the world’s largest carbon emitters, China and India.

Unless there are comparable reductions in greenhouse emissions in China and India and other developing countries, the United States could wind up cutting its emissions at great economic cost. But the practical effect on global greenhouse levels would be nil.

Simply put, EPA’s plan is a job killer. Not only will it hurt our economy and render U.S. manufacturing less competitive but its environmental value is questionable. Congress needs to stop EPA from taking our country down this path. What America needs are more jobs, not new environmental restrictions that will smother economic recovery.