Environmental Security Versus Economics

By Sal Bommarito

On the heels of the “landmark agreement” between President Obama and President Xi of China, I decided to write a piece about the issues impacting greenhouse gases. I am not an expert on the environment, yet I have strong opinions about the long-term impact of efforts to fight pollution.

From my perspective, the issues that are most relevant relate to the well being of our planet, economics and politics.

Every intelligent human wants a healthy environment for themselves, their families and their descendants. So, environmental yapping about conservatives not caring about clean air is utter nonsense. No doubt, legitimate differences arise when implementation of new clean air standards are debated. It seems that every interested person either is for unrestrained new regulations, or limited government interference, and no one is in the middle. Neither of the first two positions will result in compromise, so I would like to make a case for peaceful and collaborative deliberations.

The science about greenhouse gases is universally accepted (humans and fossil fuels are responsible for most detrimental emissions, and gases may increase the temperature of the Earth over time). We can easily agree that man must alter his behavior in the future to save Earth.

Coal-fired utility companies, automobiles and general industry generate the preponderance of gases. Therefore, these activities are the ones that politicians, planners, scientists, technologists, business people and environmentalists should focus on. Strong resistance arises when environmentalists encourage the government to move against businesses without enough consideration to the economic impact.

Electric utilities create an enormous amount of pollutants. Aggressive clean air advocates are calling for increased pollution control on these facilities and even the banning of this type of energy generation. The justification is that in a short period of time significant reductions in greenhouse gases can be achieved. This type of flippant response to the problem is unacceptable.

Pollution devices dramatically increase the operational costs of electrical utilities. A multi million dollar expenditure for scrubbers results in zero revenues and so it decreases profitability. Of course, the response to this is that the environment improves, which is desirable. And, environmentalist might say that the facility’s profits were artificially propped up at the expense of the environment. Yet, the economic and practical considerations could be devastating.

Closing electric generation facilities would dramatically decrease the need for coal. This would have a devastating impact on states that produce coal such as Kentucky. I hasten to point out that the presumed leader of the newly elected Senate is from Kentucky. It would be political suicide for any politician from a “coal state” to come out against coal.

Secondly, closing or making these facilities unprofitable would result in a significant decline in electrical output. What is the replacement? This type of dramatic change can only be done over a generation or longer.

The second greatest producer of greenhouse gases is the automobile. The writing is on the wall, and significant progress has been made in making cars cleaner. Additionally, the conversion of fossil fuel cars to electric power is becoming a reality. Yet, an immediate prohibition on fossil fuel cars or a burdensome requirement for significantly greater pollution controls would have a devastating impact on car companies, the thousands of companies and their employees who supply car companies and oil companies.

And finally, industrial companies can be mandated to radically increase pollution control in the short-term. Some of these companies would suffer the same fate as electric facilities, if the mandates were onerous. But, there is another consideration. Competition from companies in places where pollution control is not imposed would have a significant advantage. All things being equal, the company that must pay for pollution control will have higher costs than the company in China or India that does not pay these costs. A significant mandate from the federal government could make the U.S. less competitive overnight.

One other issue that represents a cloud over this controversy is politics. I mentioned one form of politics relating to Kentucky and other coal producing states. But, there are political considerations on the other side of the aisle. For instance, President Obama’s deal with the Chinese could be fraught with politics. It would be inane to agree to burdensome pollution requirements, without significant due diligence, to gain an edge in the next presidential election.

The environmental controversy is complex and must be dealt with carefully. There is no need to rush into a program that could potentially create huge hardships for large groups of Americans or American businesses. Having said this, it is equally unwise not to recognize the long-term impact of abusing the environment. So, sacrificing the environment for profits is not acceptable either.

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