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The Limit to and Importance of EPA's Newly Proposed Climate Regulation

09/16/2013 09:05 am ET | Updated Nov 16, 2013

In an obviously orchestrated leak to the New York Times last week, the Obama administration signaled that they were ready to formally propose rules for greenhouse gas emissions from newly built (as opposed to all) electric power plants. According to Michael Wines of the New York Times, this tiny, baby-step version of carbon regulation is expected to create a political uproar:

...even before the proposal becomes public, experts on both sides of the issue say it faces a lobbying donnybrook and an all-but-certain court challenge. For a vast and politically powerful swath of the utility industry -- operators of coal-fired plants, and the coal fields that supply them -- there are fears that the rules would effectively doom construction of new coal plants far into the future.

The proposed rule will require gas-fired plants to meet stricter emission standards than coal-fired plants, but the technology to meet the gas standards has already been developed, while the technology for "clean coal" is still unproven. Industry opposition to technology-forcing environmental rules is nothing new. In the early days of air pollution control in the 1970s, American automakers argued that the catalytic converter could not be mandated because it was not ready for use. They maintained this argument until Congress began discussing banning the internal combustion engine. Suddenly prototypes of the catalytic converter began to appear everywhere -- including in congressional hearing rooms.

This elaborate dance between industry and EPA on environmental regulation is part of a long established pattern of government-business interaction in the United States. In America, and in fact in all countries, economic power is both directly and indirectly translated into political power. Money talks, and it always will. However, while money is central, there can never be a totally free market; and every competition requires rules of the game. Economic regulation, taxes, and rules on fraud and protection of private property constrain free enterprise. Businesses know they must operate within a system of law. That system both constrains and protects them. The ideological rhetoric opposing all government regulation is pure nonsense. The regulatory process is a bargaining process where rules are proposed, and adjusted to minimize costs while maximizing benefits.

All environmental rules have gone through a process of give and take. Some disputes are settled by changes in rules as political leaders respond to industry demands. Some are settled in the courts when EPA can't find a way to get environmental groups and industry to compromise. All of this takes time, and the regulatory process can take a decade from proposal to full implementation.

The bad news is that this will be a slow process. The good news is that EPA and its counterparts in the environmental, business and judicial community know how to play their parts. During over nearly half a century of back and forth, we have developed an imperfect process of environmental regulation that has resulted in cleaner air, cleaner water, and a nation that knows how to reduce pollution while growing its economy. While economists and policy analysts will advocate more creative and economically efficient climate policies such as carbon taxes and cap and trade programs, there is something to be said for a policy approach with a proven record of success.

As a student of organizations and management, I am always impressed by the importance of established organizational capacity and pre-existing standard operating procedures and organizational routines. Organizations (like people) are slow to learn new tasks. It is easier to implement a new program if people working on it have a mental model of what they are trying to accomplish and how to get from here to there. EPA knows how to develop and enforce air regulations. They've been doing it for decades. Policies made in Washington are coordinated by the agency's ten regional offices, and then implemented under delegated authorities by state governments. Local businesses and environmental groups weigh in and sometimes sue during the implementation process. No one would ever call this process rapid and efficient; but it does work.

Given the urgency of the climate crisis, its global dimension, and the cumulative impact of greenhouse gases remaining in the atmosphere, it is reasonable to wonder if EPA's climate regulation is too little, too late. Power plants are important, but they are not the only sources we need to regulate. If slow and steady American regulation were the only climate policy underway, we would be in serious trouble. Fortunately, it is not the only game in town. Some European countries are rapidly moving away from fossil fuels. In addition, advances in solar cell and electric battery technologies are rapidly bringing down the price of renewable energy.

While the developing world is rapidly increasing its use of fossil fuels, the combination of U.S. regulation of greenhouse gas emissions and advances in renewable energy technology are beginning to send a signal about the future of energy generation. The coal industry sees the handwriting on the wall and is desperately using political clout to counter these trends. The oil industry will be next. We are about a dozen technological breakthroughs away from a fossil fuel free future. In my view, the corporate power of the companies that will be able to exploit these new technologies will also be able to counter the political clout of the fossil fuel industry.

The pace and impact of technological change needs to be better understood. The impact of these technologies on corporate power has been profound. IBM made the adjustment to changing technologies and had the foresight to get out of the PC business. Kodak didn't make the adjustment to digital technology and (excuse the pun) is nearly out of the picture. Microsoft is struggling to deal with Google. Apple is worried about foreign smartphone competition; and does anyone remember a company called Research in Motion? Blackberry will soon be an obscure Jeopardy question. If today's fossil fuel companies don't diversify, they may go the way of Blackberry or Kodak. AT&T was the king of the landline, but they were smart enough to get into the cell phone business. Energy companies will need to follow suit and adapt to the changing market or suffer the long-term consequences.

If we solve the climate problem, it will be through a combination of government and private actions. Government must set policies that delegitimize and reduce greenhouse gas emissions. Regulations, taxes, purchasing and propaganda should all be used. Government must also dramatically increase funding for basic research in renewable energy. It should also fund the infrastructure needed to entice industry into turning basic research into viable commercial products. The private sector must do what it does best. Create and sell new, more convenient and less expensive forms of renewable energy. Finally, a public-private partnership will be needed to create smart-grids that permit a more distributed or decentralized system of energy generation. This will allow all of us to both produce and consume energy, and reduce the need for power plants in the first place.

EPA's proposed rules have an important role in solving the climate puzzle. They finally give the U.S. a national climate policy. They signal to business and global players even with the nutty climate deniers in Congress, America is still managing to move forward on this critical issue. This policy says that despite the most difficult political conditions, greenhouse gas reduction is still on the way. That message is a necessary, though far from sufficient condition for addressing the global climate crisis. We're just going to have to learn to crawl, before we start to walk.