One of the strangest aspects of the EPA’s newest rules on carbon-dioxide emissions is that they only apply to future power plants. Existing facilities — the ones that are actually producing all the pollution — get to carry on as they were. That seems perverse. So why does the EPA do things this way?
In his paper, Stavins explains why this approach is so appealing to wonks. First, it’s typically more cost-effective to construct new facilities with modern pollution controls already built in than it is to go back and revamp older, creakier plants. Plus, of course, there are politics to consider — owners of actually existing power plants and factories are more likely to complain about regulations than hypothetical owners of hypothetical future facilities.
But, Stavins says, this “vintage-differentiated regulation” approach can create serious problems. When the Clean Air Act was first written in 1970, it originally exempted older power plants and refineries from the stringent pollution limits. During the haggling in Congress, electric utility officials had convinced the bill’s lead author, Sen. Edmund Muskie, that most of those creaky older plants were soon going to be mothballed anyway, so there was no point in forcing companies to shell out money to clean them up. But that didn’t happen. Instead, power companies found it profitable to keep their oldest, dirtiest power plants alive for as long as possible. That led to endless attempts to patch up this loophole.
It’s not hard to imagine similar scenarios unfolding with the EPA’s new carbon rules for power plants. The rule says that no one can build a new power plant that emits more than 1,000 pounds of carbon-dioxide per megawatt-hour. Which means that if a utility wanted to replace one of its older coal-fired power plants (say, one that emitted 2,100 pounds/MWh) with a newer, cleaner supercritical pulverized plant (say, one that emitted 1,600 pounds/MWh), it wouldn’t be able to. Instead, the utility may just prefer to keep the older, dirtier power plant open.
The coal industry, naturally, has been quick to pounce on this feature. “Many environmentalists have criticized existing coal-fired power plants for failure to keep up with the times,” grumbled Frank Maisano, a lobbyist at Bracewell & Giuliani. “However, if EPA essentially bans the future for the sector, the incentive to further innovate will decline, and reliance on existing technology may continue.” Even many green-minded experts agree that grandfathering in older plants can have downsides.
In his 2005 paper, Stavins points out that the American way of environmental regulation is littered with unintended consequences. For instance, he writes, Congress’s car-emissions standards in 1981 may have actually increased overall pollution from vehicles in the five years that followed. That’s because the rules raised the price of buying a new automobile, which caused people to keep their older, carbon-monoxide-spewing cars for even longer. (Earlier studies had found that sales of new cars plunged 4 percent after the 1981 emissions rule was passed.)
This is one reason why Stavins and other economists prefer market-based approaches to regulating pollution — like a simple tax on all carbon — rather than complicated regulatory regimes.
But we don’t have a carbon tax. All we have is the EPA. And, when it comes to the latest rules on carbon, one way for the EPA to avoid these perverse consequences would be to start regulating existing polluters as well. In theory, the agency is supposed to do so under section 111(d) of the New Source Performance Standards program. For now, however, the agency is holding off. “We have no plans to address existing plants,” said EPA administrator Lisa Jackson in a conference call with reporters on Tuesday.
Perhaps that will change if President Obama gets re-elected. David Doniger of the Natural Resources Defence Council says that the EPA is legally required to enforce section 111(d) once it has started regulating new power plants. But that’s still up in the air. For now, “vintage-differentiated regulation” is the way of the world.