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Climate Regulations Cost You

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Climate Regulations Cost You

April 26, 2016

This year’s Earth Day celebrations, dating from 1972, followed a predictable script: they predicted environmental catastrophe unless developed countries change their profligate life styles and plunder of resources. As icing on the Earth Day cake, President Obama signed the Paris Agreement on climate change, which aims to keep the world below two degrees Celsius of warming.

In 1972, the major environmental concerns were air and water pollution and the apocalypse that would take place by the end of the 20th century from the exhaustion of the earth’s natural resources. The predictions of dread, whether they be the exhaustion of food supplies, the depletion of oil resources, a growing cancer epidemic, or deadly urban air pollution have all proven false. Since 1998, the ultimate threat to mankind has been sold as the threat of climate change.

Although these predictions were political contrivances, the cost to society in addressing them as if they were real has continued to grow and weakened our economic resiliency. Economic growth is stalled at 2 percent, productivity has declined to less than 1 percent, over $2 trillion in potential investment is held offshore, and labor participation is at 1970s levels.

The Code of Regulations, a proxy for the burdens imposed on industry, has grown from about 23,000 pages in 1960 to over 175,000 pages in 2014. And, it keeps growing, now measuring over 24 feet high. The effect of this complexity of regulation falls disproportionately on younger firms, which according to economists John Haltiwanger, Ron Jarmin, and Javier Miranda in a National Bureau of Economic Research paper, are the engines of new job creation.

A new study published by the Mercatus Center estimates that the regulatory burden in the United States represents $4 trillion in lost GDP. This exceeds total federal government spending in 2015. According to the study, if regulatory costs were a country, they would represent the world’s fourth largest economy, bigger than Germany, France, or the United Kingdom.

Source: Patrick McLaughlin, “The Cumulative Cost of Regulations.” Mercatus Center.

The study analyzes a period ending in 2012, meaning it does not take into account EPA’s new ozone rule, which threatens to put much of the nation in non-compliance. This and EPA’s clean coal regulation are motivated primarily as tools to counter alleged effects of climate change, although they have been sold as ways to improve human health.

Our economic problems are not all the result of wrong-headed climate-energy policies, but all are exacerbated by them.

The Paris Climate Agreement is a hollow version of the Kyoto Protocol, which was fatally flawed. This one will prove to be equally flawed because of economic and scientific realities. The drivers of energy consumption are population and economic growth. EIA and other organizations estimate that energy consumption will grow over 50 percent between 2013 and 2040 with hydrocarbons—oil, gas, and coal—still providing 80 percet of the world’s consumption. Unless there are dramatic breakthroughs in technologies, greenhouse gas emissions will continue to rise, not stabilize or fall. This is especially true in emerging economies where the aspirations for higher standards of living require consuming more fossil fuels.

Since the terms of the Paris Agreement are not legally binding and no penalties for countries who fail to meet them, most nations will continue their climate rhetoric while consuming the energy needed to meet their citizen’s aspirations and compete in the global economy. The US cannot do that because our regulations contain compliance and enforcement penalties, including citizen suits.

The other reality is that the focus on CO2 reductions will continue to be irrelevant to the behavior of the climate system. Climate advocates have assumed a level of sensitivity to the doubling of CO2 that has not been borne out by global temperatures over recent decades. In addition, the warming result of CO2 is non-linear, so future emissions may have less of an effect than past ones.

The United States and a few EU nations have charted an emissions reduction course that will be economically punishing and hard to reverse. Undoing the regulatory agenda that has been pursued by EPA will require the same process under the Administrative Practices Act that used to put it in place. As a result, the outlook for the U.S. economy is not encouraging. In addition to regulatory burdens, there are the burdens caused by a discriminatory corporate tax system, and the political uncertainty that discourages investment and innovation.

Environmental elites will continue global Earth Day celebrations and agendas based on fear, while millions of citizens in the United States bear the consequences of zealousness that does not recognize trade-offs or the benefits of robust economic growth and policies based on facts, not illusions.

William O'Keefe is the President of Solutions Consulting. You can follow him on Twitter here.

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