Over the years, “agency capture” has been a staple of the economic analysis of regulation—the phenomenon whereby regulatory agencies would come to be largely controlled by the industries they purported to regulate, or at the very least would protect those industries as a cartel in a tradeoff for regulatory control. Railroads dominated the Interstate Commerce Commission during much of its early life, and for decades airlines used the Civil Aeronautics Board to stifle competition and innovation.
Agency capture is still a probable outcome of many regulatory schemes. The Federal Communications Commission is likely to implement its new “net neutrality” rules in such a way as to cement an Internet cartel to the detriment of consumers and innovation. And the Dodd-Frank Act appears headed toward the cartelization of the big banks, to the detriment of medium-sized and small banks. But increasingly the regulatory state has solved the problem of agency capture by industry. It has instead become captive to ideological interest groups.
This is nowhere more evident than at the Environmental Protection Agency, which has for practical purposes become a wholly owned subsidiary of the environmental movement. Beyond a revolving door between environmental advocacy and senior EPA staff positions, there is ample evidence of close collaboration between environmental organizations and EPA staff in regulatory rule-making and even in permitting decisions.
A cache of emails and other communication records that the Energy and Environment Legal Institute and Competitive Enterprise Institute pried from the EPA through Freedom of Information Act litigation reveals close connections between EPA and the Sierra Club, the Natural Resources Defense Council, and the Environmental Defense Fund. While these collaborations may not cross a legal boundary, they certainly violate any sense of transparency and the duty of a regulatory agency to be impartial. And as with Hillary Clinton’s private email server, senior EPA officials went out of their way to communicate through pseudonymous email addresses (like former EPA administrator Lisa Jackson’s “Richard Windsor” emails) and private accounts, in what appears to be a deliberate attempt to avoid public scrutiny. In addition, EPA staff sometimes arranged to meet environmentalists offsite to avoid having to log visits to EPA offices.
For example, documents discovered in the FOIA action demonstrate that the EPA had decided to veto the application for the proposed Pebble copper mine in Alaska even before it had conducted an environmental assessment, and that it relied on an “Options Paper” produced by a lawyer working for the mine’s opponents to justify its veto. Other documents show the EPA is determined to prevent new coal export terminals from being built in the Pacific Northwest, though permitting decisions for such facilities are outside the EPA’s jurisdiction.
The most significant collaboration, though, concerns Obama’s “Clean Power Plan,” the final rule for which was released on August 3. The record is clear that environmental organizations—especially the NRDC—had major input into the design of the Clean Power Plan that was first announced a year ago, and are likely responsible for the major changes in the final, tougher Clean Power Plan rule just released.
The final rule calls for larger greenhouse gas emissions reductions by the year 2030, and will compel the use of wind and solar power over natural gas much more aggressively than the initial proposed rule of last year. The Sierra Club has openly said that after it succeeds in killing coal, natural gas is next on the menu. Having failed to stop the fracking revolution that has brought us cheap and abundant natural gas (the EPA recently gave fracking a clean bill of health after a four-year study), environmentalists now plan to constrict natural gas through the climate plan. The tougher conditions of the final rule came as a surprise especially to the natural gas and nuclear industries, reflecting the likelihood that environmentalists pressed the EPA, saying that its initial proposal wasn’t strong enough. Despite questions about the legal vulnerability of the rule, the EPA decided to double down.
On the surface the final rule appears to be slightly more “flexible,” as the EPA describes it, as it has pushed back compliance timetables by two years. But the EPA’s “flexibility” is a euphemism for ambiguities that will enable arbitrary state-by-state diktats by the EPA, which must approve compliance plans that states are required to develop and submit (Alaska, Hawaii, and Vermont are exempted). The original deadline for the state plans was to be next summer, right in the middle of the presidential campaign, so pushing back the due date was likely done to avoid an election year controversy that would be unhelpful to Democrats.
There is one other small but highly revealing change in the final rule. In the proposed rule last year, the EPA identified four “building blocks” for reducing emissions. They were: a higher “heat rate” for coal-fired power plants; switching to lower-carbon generation like natural gas; building more wind and solar power; and employing energy conservation measures such as building and home insulation and weatherization. (Think of rolling out Pink Panther insulation in your attic.) The final rule, however, includes only the first three building blocks; energy conservation has been dropped.
This change involves environmentalists having to undergo an embarrassing about-face and recognize that one of their favorite slogans isn’t true. For years environmentalists have promoted energy conservation measures for buildings and homes with the claim that such improvements “paid for themselves” and were more cost-effective than building new power plants. The EPA and the Department of Energy happily touted claims that conservation resulted in lower energy bills, and were therefore competitive, cost-effective investments.
But there’s a growing body of economic research going back more than 15 years that finds the conservation claims to be exaggerated, when they are not completely wrong. Last month the National Bureau of Economic Research published a devastating study that concluded energy efficiency investments on average had a negative 9.5 percent rate of return, and that the actual reduction in energy use was less than half as much as the government models assert.
Some sharp-eyed environmentalist probably noticed this problem and tipped off the EPA to drop the conservation building block. The conservation talking point also threatened to undermine environmentalists’ goal of killing hydrocarbon energy, because it opened the door to states promoting energy conservation as a cost-effective way of achieving the Clean Power Plan’s mandated reductions, on paper at least. With this telling change, the movement should file for intellectual bankruptcy.
But the ultimate intellectual bankruptcy of the Clean Power Plan is this: According to the EPA’s own models, full implementation of the plan will lower global warming in the year 2100 by 0.018 degrees Celsius. That’s two one-hundredths of a degree. If you believe that the world faces a climate catastrophe several decades hence, the Clean Power Plan is deeply unserious. In fact, the EPA claims no actual climate benefits from the plan. All of its claimed benefits come from ancillary reductions in conventional forms of air pollution (such as sulfur dioxide and nitrogen oxides). And the EPA is double-counting benefits, since other Clean Air Act measures are already reducing conventional air pollution. Any private company that used accounting methods like this for its profit and loss statement would be hauled before the Securities and Exchange Commission for fraud.
The whole scheme is driven by larger politics, namely, the U.N. climate summit scheduled for Paris at the end of the year. The U.N. climate circus has been deadlocked for more than a decade, and Obama was humiliated at the 2009 Copenhagen summit that was supposed to come up with a successor to the Kyoto Protocol of 1997, which has expired. Obama has decided to embark on a new strategy. With the Clean Power Plan now in motion, he will show up with a firm U.S. emissions reduction commitment in hand. Along with some bilateral tentative commitments to future action from China, Obama hopes to stitch together a potluck-style treaty in which each nation will determine its own contribution to solving climate change.
The U.N. climate caucus will tie all this up in a fancy bow and call it a “breakthrough,” hoping that no one will notice what a retreat it represents from the pretensions of climate change activism of the 1990s. The important thing is to be seen taking “action,” and keeping the diplomatic circus going.
Steven F. Hayward is the Ronald Reagan distinguished visiting professor at Pepperdine University’s Graduate School of Public Policy.
