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What Is The True Cost of Environmental Regulation?

When it comes to U.S. energy policy, federal government regulations unquestionably limit competition and innovation, and the people who suffer for it are the consumers and taxpayers. While the availability of new and abundant energy sources, such as natural gas, has caused a shift in the energy industry from coal to more economical fuel sources, federal regulations have also helped cause the cutbacks in the coal industry.

Federal regulations place a serious burden on the coal industry. For instance, the Mercury Air & Toxics Standards regulation caused some thirty percent of the U.S. coal production retirement in 2015 according to The Heritage Foundation. Compliance with the regulations would have cost approximately ten billion dollars a year, so the most economical alternative was to simply retire coal production rather than to comply with the federal regulations. Other federal regulations are aimed at the oil and gas industry.

So, it is important to ask: are the federal regulations really doing anything to help the environment? Some would say no. Other regulations exist that would achieve the same amount of environmental value, so what is the point of adding more regulation if it is only going to stamp out players in the energy sector and generates only a negligible environmental effect? Perhaps it’s just politics – and that might just be bad for average Americans.

Strict Regulations with Marginal Environmental Effect

Regulations such as the Clean Power Plan are designed to help manage global warming. But compliance with the regulations results in higher energy expenditures for American families, because compliance with the regulations increases the cost of energy production. Additionally, strict regulations that are impossible or impractical to comply with result in energy companies going out of business, rather than pay huge sums of money to achieve compliance with the regulations. When energy producers close up shop it translates into lost jobs.

Not only do federal regulations result in lost jobs, in addition, by decreasing the number of energy producers, competition is decreased and choices are reduced for energy consumers. When competition is decreased, prices go up.

As the reader may be aware from past posts, this author has not yet seen any empirically definitive evidence of global warming being caused by humans. Even if we assume this evidence exists however, a more fair and balanced approach is needed if we are going to constructively address carbon reduction as a country. Well-reasoned regulations, backed by serious analysis of the broad range of benefits and consequences associated with the regulations and by real science about the true costs and benefits, would be an approach that would benefit everyone.


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