WSJ: Obama's new energy rule is a huge tax on the poor and middle class

Carbon-Income Inequality

Obama's new energy rule is a huge tax on the poor and middle class.

June 2, 2014 7:42 p.m. ET    THE WALL STREET JOURNAL

President Obama vowed last year that he wouldn't wait on Congress to bless his anticarbon agenda, and the rule his Environmental Protection Agency proposed on Monday is equal to that promise. The agency is bidding to transform and nationalize U.S. energy the way ObamaCare is doing to medicine, but in this case without even the pretense of democratic consent.

The EPA's goal is to cut carbon emissions by 30% by 2030 from near-peak 2005 levels, which will inevitably raise the price of electricity and thus all other goods down the energy chain. The 645-page rule is targeted at the 1,000 or so U.S. fossil fuel power plants, but it more or less orders states to adopt cap and trade or a carbon tax.

A Democratic Congress debated and rejected this anticarbon program in 2010, and there isn't a chance it could get 50 Senate votes now. But no matter, the EPA claims the authority for this sweeping power grab by pointing to an obscure clause of the 1970 Clean Air Act called Section 111(d) that runs merely a few hundred words and historically has been applied only to minor pollutants, not the entire economy.
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The new rule is unprecedented because EPA is supposed to regulate "inside the fenceline," meaning that its command-and-control powers are limited to individual energy generator sources. The agency can tell America's 3,000 or so fossil-fuel power units to install on-site technology like scrubbers to reduce pollution, but not beyond. Now the agency is taking a "systems-based approach" that usurps state responsibilities in order to move electricity production away first from coal and later natural gas.

The EPA is claiming states can choose whatever methods they like to meet the carbon targets, from shuttering plants to installing more green sources like wind and solar. But beware of the Obama EPA bearing gifts. The agency recently rejected state plans to reduce regional haze before they are even formally proposed and revoked permits it had previously approved.

The EPA also claims that by some miracle the costs of this will be negligible, or even raise GDP, but it is impossible to raise the price of carbon energy without also raising costs across the economy. The costs will ultimately flow to consumers and businesses.

As an alternative to a carbon tax, some states will force-feed wind, solar and other renewables that are both more expensive and less reliable than fossil fuels. Consumers may not realize how these regulations will affect their daily lives. Groups like the Natural Resources Defense Council and the Brookings Institution support a policy known as "direct load control" that would manage when you are allowed to run the air conditioner or washing machine.

The EPA claims to be targeting "polluters," but the government is essentially creating an artificial scarcity in carbon energy. Scarcities mean higher prices, which will hit the poor far harder than they will the anticarbon crusaders who live in Pacific Heights. The lowest 10% of earners pay three times as much as a share of their income for electricity compared to the middle class. If you want more inequality, this is an ideal way to ensure it.

The EPA plan will also redistribute income from economically successful states to those that have already needlessly raised their energy costs. The New England and California cap-and-trade programs will get a boost, while the new rule punishes the regions that rely most on fossil fuels and manufacturing: the South, Ohio River Valley and mid-Atlantic. Think of it as a transfer from Austin to Sacramento.

In eight short years this Administration will have accomplished the largest transformation of the U.S. power system since the 1930s. As recently as 2007, cheap coal accounted for more than half of U.S. net generation but has now plunged to 37% and is trending down. Some of this is due to the natural gas boom, but the EPA rule will finish the job.

Notably, these plant retirements may endanger the reliability of the electrical grid. This winter's cold snap showed that traditional power is essential to keeping the lights and heat on, and the risk of rolling blackouts is real as the EPA re-engineers the system.

The irony is that all the damage will do nothing for climate change. Based on the EPA's own carbon accounting, shutting down every coal-fired power plant tomorrow and replacing them with zero-carbon sources would reduce the Earth's temperature by about one-twentieth of a degree Fahrenheit in a hundred years.

Of the 32.6 billion metric tons of carbon the global economy threw off in 2011, the U.S. accounted for 5.5 billion. Mr. Obama's logic seems to be that the U.S. should first set a moral example by imposing costs that reduce our prosperity. This will then inspire China (8.7 billion tons), which produces and consumes nearly as much coal as the rest of the world combined, to do the same to its 300 million people who still live on pennies a day. Good luck persuading Xi Jinping.
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The EPA's legal afflatus means that its carbon rule will be litigated for years, and we hope the states take the lead. As recently as Monday in Bond v. U.S. (see below), the Supreme Court held that the federal government can only make "a stark intrusion into traditional state authority" with "a clear statement of that purpose." The Congresses that passed the vague statutory language of the Clean Air Act and its 1990 amendments clearly never intended to endorse this EPA gambit.

In the American system, legislative inaction does not create a vacuum that the executive is entitled to fill. Almost all economic and human activity has some carbon cost, and the huge indirect tax and wealth redistribution scheme that the EPA is imposing by fiat will profoundly touch every American. Voters should at least have a say and know the price they will pay before ceding so much power to regulators.