The Impact of EPA Regulation of GHGs under the Clean Air Act on U.S. Investment and Job Growth

Testimony Before House Subcommittee on Energy and Power

Overview of the U.S. Economy:While U.S. GDP grew at 2.9% rate in 2010, this rate of growth is too slow to have much of an impact on reducing the unemployment rate, currently at 9.0%. Although business confidence has improved in the last several months, the business community faces uncertainty on an unusually large number of fronts including the implementation of health care and financial reform legislation, the specter of an $18 trillion dollar federal debt in 2021 as well as the unknown cost of complying with various EPA regulations.

Role of Investment Spending in U.S. Economic Recovery: One of the most adverse features of EPA’s regulating GHG’s under the CAA is the impact on business expenses, the cost of capital and on new U.S. investment. U.S. gross private domestic investment was down by $385 billion in the fourth quarter of 2010 relative to the fourth quarter of 2007. Any substantial investment could well exceed EPA’s threshold level of GHG emissions and be subject to yet unknown CAA requirements. The recent historical relationship between investment spending and employment shows that each $1 billion dollar decrease in investment is associated with a loss of 15,500 jobs in the U.S. Conversely, each billion dollar increase in investment is associated with 15,500 additional jobs.

Impact of CAA Regulation on GDP and Employment: Analysis with IMPLAN, an input-output model,    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.

Impact of EPA Regulation and Jobs and Economic Growth: 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. The main effect of EPA mandating BACT for GHG reduction under the CAA will be to make energy more expensive, increase production costs and slow productivity and economic growth.

Impact of BACT Guidelines: The BACT guidelines are not likely to materially reduce the uncertainty facing regulated entities planning capital investments or improvements and thus the factors that impact the cost of capital and investment hurdle rates will continue to impede the U.S. economic recovery. All the guidelines are subject to potential litigation which may over-rule EPA’s reassurances.

Conclusions: The use of economic analysis suggests that regulating GHGs under the CAA will slow investment and job growth and have 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.

 

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