EPA’s proposed power-sector air rules will weaken American manufacturing

The U.S. Environmental Protection Agency (EPA) has proposed two new air quality rules that pose substantial threats to both employment and the competitiveness of U.S. manufacturers.  The first is the Cross-State Air Pollution Rule (CSAPR) that would cap key emissions crossing state lines and the second is the Utility Maximum Achievable Control Technology Rule (MACT) that would set absolute limits in mercury and other chemical emissions.  As designed, the Utility MACT would be the most expensive direct rule in EPA history.  Indeed, the EPA itself has estimated it would impose costs of about $11 billion a year on the U.S. economy, though third-party estimates of compliance costs are considerably higher.

For example, a recent analysis by National Economic Research Associates (NERA) finds that complying with the proposed standards would cost power companies close to $18 billion per year for the next 20 years.  Some coal-fired plants would be so expensive to retrofit they would simply be shut down.  The NERA study also projects that about 48 gigawatts of coal generation would be retired over the next five years, representing a 13 percent decline. 

New natural gas generators would be the most likely substitutes for these shuttered facilities, and the increased demand for gas is estimated by NERA to push up gas prices by about 17 percent by 2016.  Higher prices, in turn, would increase natural gas expenditures by the residential, commercial, and industrial sectors of the economy by $85 billion or $8.2 billion per year.  Average retail electricity prices would jump by about 12 percent with some parts of the country recording increases as high as 24 percent.

Though most recent discussion has focused on the implications of these rules for the utility sector, little attention has been directed at how higher electric power costs would affect America’s energy-intensive manufacturing industries. The most recent U.S. Census of Manufacturers found that the ten most energy-intensive manufacturing industries—including chemicals, cement, and iron and steel—employed almost 1.2 million workers. 

Because these industries have strong upstream and downstream linkages, also called “multipliers,” they support at least 9.6 million additional workers across the economy.  Should America’s manufacturers, and in particular our energy-intensive industries, be forced to reduce capacity and lay off workers in response to externally-imposed energy cost increases such as those that would inevitably attend the rapid implementation of CSAPR and MACT, job losses would be recorded in many non-manufacturing industries as well. 

A study prepared a decade ago by the National Bureau of Economic Research on the manufacturing job losses associated with the 1970 and 1977 Clean Air Act Amendments found that in the first 15 years after the Amendments became law (1972-1987), nonattainment counties lost approximately 590,000 jobs, $37 billion in capital stock, and $75 billion of production activity.  And these were just the “direct” losses.  Up to 4.7 million additional jobs may have been destroyed across the U.S. as a consequence of the 1970 and 1977 Amendments.

The likely job losses from implementation of CSAPR and MACT as proposed would also be significant.  Should the new rules result in a ten percent reduction of employment in America’s ten most energy-intensive industries, 117,300 on-site jobs would disappear.  However, those direct reductions would multiply into more than one million total job losses over the next decade. 

Manufacturing has been one of the few bright spots in an otherwise gloomy economy.  With unemployment stuck at more than nine percent and many Americans too discouraged to even look for a job, expansion of our industrial sector, with its strong export orientation, offers the best hope for a sustainable economic recovery. 

It makes little sense to erode the global competitive advantages of our most productive industries through ill-conceived and ill-timed regulatory mandates.  What’s more, the aggressive nature of EPA’s proposals will also raise the costs of providing electricity at both the wholesale and retails levels, putting additional rate burdens on small businesses and households during this time of serious economic stress.
 
Bernard L. Weinstein is associate director of the Maguire Energy Institute and an adjunct professor of business economics in the Cox School of Business at Southern Methodist University.  His email is This e-mail address is being protected from spambots. You need JavaScript enabled to view it