New Source Review’s Pernicious Incentives

In a comment to a post on clean coal technologies, Robert Prather has a concise statement of what I think makes the most sense for dealing with emissions from old power plants:

When the clean air act was put into place it was assumed that a lot of older plants would shut down so they were exempted from the clean air regulations. Well, they didn’t shut down at least in part because their competitors had been hamstrung with the clean air act. The concept of grandfathered plants should be done away with and the cost of their pollution pushed back on them using a cap-and-trade system. They should be treated like every other plant. If it’s economical for them to do the upgrades, they should. If it’s economical for them to purchase enough credits in the cap-and-trade system to continue operations, that should happen. If they can’t produce power in a way that’s both economical and clean, within the rules of the system, they should shut down.

Hear, hear.

4 thoughts on “New Source Review’s Pernicious Incentives

  1. OK, but understand that the reason utilities fought so hard to get out from under New Source Review is that they did not want to bear the costs of their plants’ pollution. A cap-and-trade system would require them to bear some costs — how much would depend on where your limits were set — and if these were high enough utilities would resist CAT as fiercely as they did NSR.

    Utilities no more than other businesses are out to destroy the planet, but it is foolishness both economic and political to assume that they are willingly going to accept costs they think they can avoid.

  2. Incidentally, I’ve talked at length with an expert at EPA Region IV about the administration’s changes in NSR enforcement. He assures me that he and his associates have no idea whatever as to what the changes will mean for air quality. From their point of view the worst thing about the administration’s rule is that it contains no provision requiring point sources inform EPA of the impact of modifications they plan to make.

  3. Zathras,

    Yes, utilities will fight any attempt to avoid the cost of the pollution — after all, they’ve been getting it free to date — but removing new source review and putting them in the cap-and-trade system has the virtue of letting them find the best way to reduce emissions.

    New source review is just an excuse for the EPA to scour a plant’s maintenance records and give the operators headaches. It’s also counter-productive. Suppose a plant wants to upgrade a boiler — instead of a like-for-like replacement — that increases the efficiency of the plant. They won’t do it if it will kick in a whole host of other regulations and treat the plant as a “new source”.

    New source review is a dumb, counter-productive concept that resulted from grandfathering of plants. Both should be removed.

  4. Don’t take this personally, Robert, because I don’t mean to single you out. I really object to use of adjectives like “dumb” in policy discussions.

    NSR did make sense as a provision of the initial Clean Air Act, and so did grandfathering. That was 30 years ago, though; the reason we are still dealing with the application of succesive regulatory iterations of past law is that environmental legislation is both controversial and very demanding from a technical standpoint. This means that Congress can’t be brought to reauthorize (and revise) the major environmental laws in a timely way, and regulators consequently have to apply legislative language designed for a different time to present-day realities.

    This is a major process problem, suggesting the need for significant changes in how Congress deals with laws of this kind. It is fair to describe the results of the problem in this area as “counterproductive,” as you do, but adjectives like “dumb,” “stupid,” “moronic” and so forth are pretty counterproductive themselves. They regularly appear in the arguments of academic economists oblivious to the obvious reality that if one does not already agree with the point of view being expressed one is likely to simply tune out arguments supported by this type of language. As someone with considerable experience dealing with Congressional staff, officials elsewhere in government and lobbyists — I have at various times been all three — I can tell you this happens not just some of the time but most of the time.

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