Obama Administration Issues Rules to Curb Ozone. Susan Carroll, HoustonChronicle.com
This is behind the Chron's increasingly expensive pay wall. So go read the entire thing if you can. For my argument I am going to be selectively quoting here.
At long last the EPA has uncorked it's latest assault on the petrochemical industry in an effort to save Gaia. By seeking to reduce atmospheric ozone they have placed themselves in direct opposition to the entire petrochemical industry and Sol. You almost wonder if, somewhere, God looked down on the EPA and uttered "seriously?"
The problems that I have with the EPA here is not in the form of pollution control. I think this is a worthy goal and we should all be stewards of our planet, attempting to leave it cleaner and nicer than we found it. By all accounts however, that is happening even without tighter regulations. The reason for this is because the public and investors are not going to support bad actors. As a member of the oil and gas industry, we all understand the need and responsibility to produce and refine our commodity in the most environmentally responsible way possible. All of us? Probably not. Because in any industry there are always bad actors, but an overwhelming majority of us sure. The problem with most government regulation is that it regulates to the lowest common denominator, punishing not only the wrong-doers but those who are complying as well.
In this case the EPA seems to be relying on some dodgy science. To whit...
Rice University researchers have examined local health effects of ozone by analyzing city of Houston emergency ambulance service records and cross-referencing them with ozone measurements for an eight-year period. They found the risk of heart attack increases by as much as 4.6 percent during peak periods of pollution. In a separate study, they found the risk of asthma attacks increase by 10 percent between 50 and 70 parts per billion.On the surface, this seems pretty damning, if you don't understand the scientific method and this one important fact: Correlation does NOT equal causation.
In the case of pollution and ozone, there are many factors that could explain why health related issues are spiking. For one, pollution and ozone are typically highest in the Summer. In Houston, it's almost unbearably hot, and heat and dehydration are both causes of stroke, heart attack and a host of other medical problems. Does ozone play a role? Possibly, but how big of one we cannot tell because some grad assistance at Rice studied a couple of sets of data and noticed that, in a vacuum, they moved in harmony.
Granted, this study does raise some interesting questions, but it's hardly complete and the science should not be "settled".
On the issue of pollution I am a little less frustrated. There are reams of data showing that particulate matter leads to increased health risks. I get that. But again, companies are already making great strides in doing that within budget. I don't really see the need for the EPA to act as a budget buster based on bad financial analysis. How do I mean?
EPA estimates the cost to industry would be $1.4 billion annually in 2025, when most counties are expected to comply. The agency said those costs are outweighed by health benefits of about $2.9 billion to $5.9 billion.
Any way you look at it this is a bad financial conclusion. Consider the following:
- The EPA seems very certain that they can isolate industry impact exactly but provide a wide range of error ($3 Billion) for health impacts. Not only is this faulty, it's very close to negligent. The current administration has a habit of underestimating the true impact to industry in regards to its regulatory agenda. In fact, I would argue the overall impact to industry (including job-loss, loss of additional investment and other factors, is well North of the $5.9 Billion top end that they EPA says will be gained.
- The EPA is notoriously loathe to provide the hard numbers behind their economic guesses. In which case, this becomes a political statement not one backed by sound economics.
- Companies are not going to just absorb additional costs in a vacuum. When operational costs go up it's typically labor expense that goes down. For the Houston region the petrochemical industry is a huge job creator. While I understand there are a lot of people in Houston that would like to see it go away, the impact to the region would be disastrous in terms of population flight, loss of tax base and loss of economic clout. Houston made it's International bones as a global energy center. If you take away that economic clout, and the money behind it, it becomes something closer to Cleveland South. Again, there are people who would like to see that happen, they're just don't say it out loud.
There is a lot that can, and will, be done to continue to clean the air and make oil and gas production cleaner and more sustainable. Amazingly, the very things that could accomplish that AND turn a profit are not being seriously explored. Natural gas is relatively clean, and is currently being flared at high levels because there is no market demand, yet the Administration has remained almost silent on the issue of either expanding it's use, or expanding LNG exports. Clean coal technology is in it's infancy, but does have some promise, especially CO2 capture for Enhanced Oil Recovery (EOR) projects. But the Federal Government and States (with a couple of notable exceptions) are not seriously discussing incentives to allow companies to do that.
I've said before that I'm not a fan of tax incentives for companies to drill wells and produce oil and gas. These are things that we are going to do anyway regardless of whether or not we get a temporary break on taxes. Where I can see incentives working it to entice companies to take financial risks on projects such as anthropogenic CO2 capture for use in EOR. This would serve a dual purpose in both increasing a companies willingness to invest capital, and it would provide a social good for those who believe that man is primarily driving climate change.
In short, it's a win-win.
What the EPA is proposing is a lose-lose type of regulation. It increases the cost structure of doing business while increasing the burden on the tax payer due to greatly increased outlays needed to enforce the unenforceable. Even shorter: The EPA is making regulation to benefit the EPA.
And they're straying away from good science to do it. That should concern you somewhat.
