Regulation is one area where US President Donald Trump is likely going to follow the recommendations of his Right-wing cohorts. If Mr. Trump decides to embrace anything like the extreme policy agendas of the far Right, he will assuredly put himself in direct conflict with liberals, progressive, and moderates. In doing so, he will reduce regulatory costs, but the costs of failing to properly regulate, as well as the political backlash, will pave the way for far more intrusive regulations once government shifts Left again. Exasperating the tendency to over then under regulate will, in turn, generate economic instability and result in costly regulatory uncertainty.
As such, the Trump Administration must not embrace an anti-regulation stance. It must pursue proper regulation. Because the forces of competition continually pressure businesses to cut costs, proper regulation and enforcement are needed to prevent businesses from undercutting public safety. Where pessimists see regulation as nothing more than an unnecessary cost to industry, businesses and industries actually need proper regulation to reduce unforeseen and deferrable costs that will not be realized for years to come, if they are ever realized. Without proper regulation, short-term decisions undercut the long-term competitiveness of businesses that do not embrace necessary standards.
Countries all over the world go through periods, usually during times of great economic growth or periods of prolonged economic stagnation, where regulation is viewed as a sin that inhibits economic growth, instead of an attempt to force businesses to recognize the costs they might displace onto their workers, communities, the environment, and so on. During these times, people advocate for "commonsense regulation" or “proper regulation,” but what happens is all regulation tends to be undermined while regulators grow negligent in their responsibilities. The Trump Administration needs to pursue proper regulation that actually attempts to properly and efficiently regulate.
Efficient regulation is regulation that accomplishes its regulatory objective while imposing the minimum cost onto the regulated businesses and industries.
For the Trump Administration, energy independence, a.k.a. energy security, will be a priority, but it also a common priority embraced across the political spectrum. Those leaning to the Right wish to achieve energy independence through greater utilization of fossil fuels; whereas, those leaning to the Left wish to suppress the development of new sources of fossil fuels to push alternative energies. Because economies solely exist to distribute wealth in order to provide for the needs of people and America must be governed for the middle, the best course of action for the Trump Administration is to foster the development of improved energy efficiency, alternative energy sources, and reduced pollution.
“Black gold” is the cheapest and most plentiful source of hydrocarbons on the planet, so there will always be demand for oil, even if this amazing substance is no longer burned just to push a car a few miles down the road. As such, there is also a common need to utilize alternative energies in order to preserve fossil fuels for high value, such as the production of medicine and plastics, uses where there are few viable alternatives. The question is, therefore, how to use proper regulation to foster economic development in the oil, gas, coal, and alternative energy industries in order to achieve the most efficient utilization of our natural resources.
The US Environmental Protection Agency’s embattled “Clean Power Plan,” which serves as example that the Trump Administration is likely to scrap, seeks to reduce carbon emissions from power plants by an average of 30 percent by 2030 with specific targets for each state. Although the amount each state must reduce their carbon footprint varies under the new proposal, the overall outcome remains the same, including the harm to the economy. The EPA originally announced rules that would limit the allowable amount of carbon dioxide emissions for new power plants to 1,000 pounds per megawatt of electricity for natural gas power plants and 1,100 pounds per megawatt of electricity for coal power plants.
In order to achieve reductions in emissions, proponents of these caps want power producers to turn to carbon capture technology. Unfortunately, these technologies have yet to be commercialized on a large scale. Consequently, these new standards are premature. The most advanced, lowest carbon emitting power plants in service, or soon to be in service, produce around 1,800 pounds per megawatt of power. Carbon capture technology prevents carbon from entering the atmosphere. Additionally, the captured carbon can be used to produce byproducts like ethanol.
That said, carbon capture technology adds costs to electricity production unless the value of any potential byproducts can equal or exceed the cost of using the technology. All emerging technologies need time to reach a point of equilibrium where the costs and manufacturing capacity of such products are able to approximate their intrinsic value. Premature regulatory pushes for technologies create artificial demand that lead to unstable prices. In other words, a push to rapidly force these technologies into the marketplace can create unnecessary price spikes for consumers and electricity producers while offering little return benefit for the increased costs.
The consequences are increased costs and an unwillingness to adopt newer technologies, which prevents further decreases in pollution while further increasing costs through an ongoing lack of efficiency. These efforts to reduce emissions for new power plants will have negligible benefits to the environment, because they only apply to future power plants. Should these regulations be extended to already existing power plants, the environmental benefits over the next few months or years would also be minimal. As such, the most prudent action is to roll these regulations out in a smarter fashion.
If a limit of 1,800 pounds per megawatt is achievable now, all new power plants should be limited to, or slightly below, this amount. Adding a carrot to this stick, power plants should receive tax credits for reducing their emissions to, at, or below the 1,100 pound limit. A progressive tightening of tax credits and standards would incentivize further progress. This approach would help foster the construction of newer, more efficient power plants that can replace old power plants, which is important as the US is light-years from shedding our reliance on coal power. Moreover, this is the kind of economic, technological, regulatory approach the Trump Administration needs to embrace in all regulatory affairs across all industries.
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