Investment Spending, Job Growth and Economic Recovery Will All Be Impeded By EPA’s Regulation of Greenhouse Gases Under Clean Air Act

Lawmakers need to understand the likely broad economic impact of EPA’s Greenhouse Gas (GHG) reduction mandates under the Clean Air Act, according to American Council for Capital Formation Senior Vice President and Chief Economist Margo Thorning.  At a hearing today of the House Subcommittee on Energy and Power, Thorning highlighted findings from a recent ACCF Special Report on the economic burdens caused by EPA’s stringent regulations on the cost of capital, investment spending, job growth and economic recovery.

Investment spending, a critical component to U.S. economic recovery, will be hampered by the EPA’s pending GHG regulations, increasing the risk premium added to the firm’s cost of capital by 30% to 40%.  This is likely to result in a decrease in U.S. investment by 5% to 15% over the 2011-2014 period.

Thorning also pointed to analysis with IMPLAN, an input-output model, which shows that if U.S. capital spending declines by $25 to $75 billion, in 2014 there would be an economy wide job loss of 476,000 to 1,400,000 when direct, indirect and induced effects are included. As a result, GDP would be $47 billion to $141 billion less in 2014.

While it is true that a certain number of jobs may be created in some industries that build the energy efficient equipment mandated by regulators, overall, however, the evidence suggests that the total impact on U.S. net job growth will be negative. This will largely be due to companies passing on the higher costs of the new requirements to their customers as well as to their workers and shareholders in the form of lower wages and smaller returns on equity investments. Job “leakage” is also likely to result from relocation of U.S. firms to overseas where energy will be cheaper under a friendlier regulatory environment.

“Economic analysis suggests that regulating GHGs under the CAA will slow investment and job growth, while having no significant impact on reducing global GHG emission growth. Consequently, it makes little economic or environmental sense for EPA to regulate GHGs under the Clean Air Act,” Thorning concluded.

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