Economic Considerations of Environmental Regulations
On May 21st, senior associate Dave Farnsworth participated in a panel entitled “Do Environmental Regulations Help or Hurt the Economy?” at the 20th Annual New England Energy Conference and Exposition. The symposium, hosted by the Northeast Energy and Commerce Association and the Connecticut Power and Energy Society, focused on “Driving New England’s Energy Future – Who’s at the Wheel?” At the heart of the panel discussion was the question ”Do we have to choose between environmental protection or economic growth?” Mr. Farnsworth explored the question itself and discussed two examples – the Northeast’s Regional Greenhouse Gas Initiative (RGGI), a carbon cap-and-trade program for electric generators, and the potential for the US Environmental Protection Agency to regulate existing fossil generators under the Clean Air Act, Section 111, New Source Performance Standards. He emphasized that the actual public policy choice is not between inaction, on the one hand, and spending money on regulatory programs that hinder economic growth, on the other. Today, the economy already shoulders billions of dollars in costs due to government and private insurance responses to severe weather events such as Superstorm Sandy and Hurricanes Katrina and Irene — events that are consistent with what climate science says will result from global warming. Instead, the benefit cost calculation of regulatory programs should be conducted by comparing current expenditures and promoting least-cost solutions. Mr. Farnsworth first illustrated how the states that designed the Regional Greenhouse Gas Initiative, a program originally modeled on the Federal Acid Rain program, recognized the economic and environmental benefits of (1) allocating allowances via auction rather than free distribution, and (2) preserving member state flexibility to invest auction proceeds as they see fit. The RGGI participating states invest over half their auction proceeds in the least-cost avoidance of CO2 emissions through aggressive funding of existing state energy efficiency programs. The second example focused on the potential cost effectiveness of the US Environmental Protection Agency developing New Source Performance Standards (NSPS) that are sufficiently flexible to capture and promote the carbon reduction benefits of the many clean energy efforts that states have already pioneered and implemented, rather than developing an additional program that would require a more expensive and less effective unit-by-unit NSPS program.