Policy Documents

The Economic Impact of Regulating U.S. Greenhouse Gas Emissions Under the Clean Air Act

Margo Thorning –
September 14, 2010

The imposition of greenhouse gas permitting requirements on stationary sources will negatively impact U.S. investment, job growth and economic competitiveness during the next several years and beyond. Energy prices, including electricity prices, and production costs will raise across many industries as a result of the permitting requirements which are likely to entail fuel switching and /or changes in technologies and production processes. Specifically, the uncertainty regulated entities will face due to permitting delays, lack of knowledge how EPA will define Best Available Control Technology (BACT), permitting challenges from advocacy groups and lack of certainty that the Tailoring Rule will be upheld contribute to a significant rise in the hurdle rate required for new U.S. investment. Unregulated entities will also incur higher hurdle rates for investment due to the delays and uncertainty impacting the investment decisions of their customers in regulated sectors. Higher hurdle rates will decrease U.S. investment (relative to the baseline forecast) and result in slower growth in GDP and employment. In addition, the permitting requirements will also contribute to “carbon leakage” as energy intensive industries shift more production to developing countries whose industries produce more GHGs per unit of output than do those in the U.S.