Monday, February 6, 2017

Was Congress Right to Repeal Obama's "Stream Protection Rule" for Coal Companies?

With his flurry of executive orders, the focus of what has happened since the latest presidential administration has been on President Trump. I would like to take a break from that, however brief it might be, and focus on Congress. You think when you hear the word "Repeal" these days, it is referring to Obamacare. Based on what Congress did last week, their focus was on repeal an obscure environmental law from the Obama administration called referred to as the "stream protection rule."

The steam protection rule (SPR) was created with the intention of stopping the coal industry from dumping coal mining waste into streams and rivers near coal mines. A pertinent facet of coal mining is mountaintop removal mining. There are times where the only way to get at coal buried underground is blow up the tops of mountains. This creates debris, which is then dumped into valleys below and can affect waterways. The 1977 Surface Mining Control and Reclamation Act was created to remedy the situation of this sort of pollution. The issue is that the rules surrounding "stream buffer rules" had not been updated since 1983. While the Bush administration made an attempt to update the rule (it was later struck down in court), the rule had not been officially updated until December 2016 under President Obama. The rule under the Obama administration would have required streams and mining areas to their previous pristine state prior to the mining operations, as well as maintain a buffer zone that blocks coal mining within 100 feet from streams.

However, Congress was able to find a way to repeal the bill shortly after its enactment. What makes Congress' move interesting is that they are using the Congressional Review Act (CRA) to repeal the SPR. While Congress can repeal whatever distasteful piece of Obama-era legislation with the CRA, the major catch is that only applies to legislation approved within the past 60 legislative days, which means it does not apply to earlier Obama-era legislation. There is at least some symbolism going after this obscure coal-mining law because it shows a more proactive Republican government that is willing to make changes that it deems positive. It was also an easy reach in comparison to the difficulty repealing regulations under the EPA's rule-making process. This begs the question: what sort of impact does it have on the environment, as well as the coal industry? Environmentalist groups such as the Sierra Group aren't happy about the repeal, while the coal industry was lambasting Obama back in 2016 because they claimed that Obama's bill would do nothing to protect streams while at the same time kill the coal industry.

The Surface Mining Reclamation and Enforcement Office (SMREO) published the SPR in the Federal Register back in December 2016. The details published in the Federal Register include the costs and benefits as a result of passing the SPR, which have been modified since the July 2015 draft Regulatory Impact Analysis. Since we live in a reality in which the SPR has been repealed, when covering costs and benefits, I will cite the SMREO in context of effects of a repeal instead of an enacted SPR.

Environmental Impact of SPR Repeal
As a result of the repeal, the SMREO points out that there will be a number of environmental protections that will no longer be afforded between now 2020 and 2040, including:
  • Restoration of 22 miles of intermittent and perennial streams per year (total of 440 miles)
  • Improved water quality of 263 miles of intermittent and perennial streams per year downstream of mine sites, or a total of 5,260 miles. While 5,260 miles sounds like a lot, there are still 3.5 million miles of stream in the United States, which means that the SPR would have only affected 0.15 percent of streams in the United States.
  • Improved reforestation of 2,486 acres of land per year, which is total of 49,720 acres. We also have to keep this acreage in the context of the overall forest average size of the U.S. As of 2012, the United States has 766 million acres. Assuming improved reforestation means that we now lose 49,720 acres of forest, this would mean that the repeal would reduce American forests by a mere 0.0065 percent.
  • The carbon reduction in 2020 as a result on the SPR would have been 2.6 million short tons. Since the U.S. coal industry accounted for 1,364 million metric tons (1,504 million short tons), or 71 percent of carbon dioxide emissions associated with electricity generation, the SPR would have meant a 0.17 percent carbon emission reduction from the U.S. coal industry in 2020.

Economic Impact of SPR Repeal
  • If passed, the coal industry would have had to pay an estimated $80 million annually in compliance costs, which would have been 0.1 percent of annual revenues (SMREO). Between 2020 and 2040, that would have meant $1.6 billion lost.
  • The SPR would have also reduced coal production by 700,000 tons annually (SMREO). In 2015, the U.S. produced 896,941,000 tons. The SPR would have meant a 0.78 percent reduction in coal production in comparison to 2015 production numbers. However, since coal production has been experiencing a decline in production ever since its peak in 2007, which means it will have bigger impact on production in terms of percentage.
  • Ironically enough, the SPR would have increased employment by 124 full-time equivalent (FTE) in the coal industry (SMREO). However, the reason for the increased employment would not have had to do with actual production, but hiring employees in relation to implementing the SPR. 
    • Between 2020 and 2040, there would have been an annual loss of 156 FTE (3,120 total jobs) in coal production, but a gain of 250 FTE for jobs (or 5,000 total jobs) related to SPR implementation. 
    • The National Mining Association unsurprisingly disagrees with these estimations, and estimated in its October 2015 report on SPR that between 112,757 and 280,809 jobs would be lost.
This obscure law brings up two motifs in the greater public policy arena. First, do we always have to pit environmental concerns over economic concerns, or can we take into account both? I believe that ideally, we should have policy that accounts for both, but there will be occasions where either the environment or economy take precedence. Second, we need to find a way to distinguish between necessary regulation and heavy-handed regulation such as the Clean Power Plan. Granted, I think that most regulations are burdensome, but there are times in which we do find ourselves needing some government regulation. This last statement will probably make some libertarians and other proponents of smaller government shriek. At the same time, I am proponent for limited government, not a non-existing government. Even for someone such as myself who believes that the best government is the one that governs least, proponents of limited government need to be able to state when government regulation is necessary without steering from general principles of smaller government, less regulations, and greater economic freedom. The Stream Protection Rule is one of those cases.

As you saw with the environmental and economic impacts, the net impacts of either are not that big in the grand scheme of things. This means neither that the economy would have fallen far apart, and nor would have the environment as a result of the SPR. While the effects are modest, the SPR still acts as a microcosm of the greater debate surrounding cleaner energy. With that being said, in spite of my strong belief in limited government, I find this to be a case for the government to step in for two reasons.

One is that water scarcity has been an issue for a while, and has not gotten better. Granted, government policy has contributed to the problem by underpricing water and thereby creating a shortage (see Economist articles on water management here and here), but we are going to need all the access to clean water we can get. I'm not saying that we should preserve water above all else. But given how essential water is to human life, I would like it if we didn't add to the list of conflicts over water that have already taken place.

The second reason I have less of an issue with the SPR is because in spite of whatever the cumulative effects of regulation are on the coal industry, they are not the coal industry's biggest concern. The Energy Information Administration's latest projections show that coal is on the decline (see below). Even without the SPR, the coal industry was projected to lose 15,000 jobs by 2040. Coal will remain relevant, but it will not have the clout in the American energy sector that it once had.

What is the reason for this decline? By and large, it is market forces. For one, as the Institute for Energy Economics and Financial Analysis (IEEFA) puts it in its analysis of the 2017 coal market, "The industry [is] saddled with a fundamental problem it has failed to address after being riddled with bankruptcies: too many companies are mining too much coal for too few customers."

Production is expected to decline by up to 40 million tons in 2017, according to the IEEFA. The IEEFA also brings up how coal prices aren't increasing enough to stimulate new investment or benefiting shareholders, which might something to do with the fact that coal is not as cost-effective as it used to be. Coal's main competitor is natural gas, and hydraulic fracturing has made natural gas cost-effective, has brought energy prices down, and natural gas emits significantly less carbon than coal does. Plus, President Trump wants to "unleash $50 trillion in untapped shale, oil, and natural gas reserves," which will not do any favors for the coal industry. Additionally, renewable energy is becoming and will continue to become more cost-efficient, which will further displace coal mining. More cost-efficient and cleaner alternative energy sources will cut into coal's long-term market share. U.S. coal exports have been dropping since 2012, which also cuts into coal's demand. The Brookings Institution found that automation has been increasing in the coal industry, which puts a damper on coal mining employment (see below). And if that wasn't enough, the demand for electricity has been slightly declining over the past few years, according to the EIA.

Perhaps the Right-leaning Heritage Foundation is right in that the regional differences are distinct enough where the state government should handle the regulations instead of the federal government. However, I don't think making that distinction in legislation would save the coal industry. I'm sure that President Trump and the Republican Congress will do with they can to repeal or modify previously enacted legislation in order to try to bolster the coal industry's position in the energy market, but the IEEFA acknowledges that regulatory relief would not likely increase coal production. I understand that the coal industry is trying to stop the hemorrhaging, but the coal industry is going off a cliff. As much as regulations can and do play a role in the coal industry, the truth is that the coal industry is less relevant than it once was, and repealing the Stream Protection Rule is not going to ultimately change the coal industry's projected path.

4-6-2017 Addendum: The Right-leaning American Action Forum explains why the decline in coal is mostly due to markets, and not due to regulations. 

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