Industry Perspectives Industry Weighs Capital Options Factors That Can Affect Decisions –Benefits...

Industry Perspectives

• Industry Weighs Capital Options

• Factors That Can Affect Decisions– Benefits Against Costs – Certainty– Coordination

• Can The United States Change Its Approach?• International Implications

Industry Must Choose

• Industry regularly must choose between competing projects

• Never enough capital to do all projects; must weigh project benefits against timing to completion

• Regulatory framework a potentially critical factor in making the investment choice

Factors Affecting Decisions

• Benefits Against Costs– Environmental regulation manages risk – it

does not prevent or eliminate all risk– Consequently, environmental laws that prevent

or diminish the balance between benefits and costs create problems

– Clean Air Act• Ozone Standard


• Clean Air Act requires EPA to set National Ambient Air Quality Standards:– (1) National primary ambient air quality standards,

prescribed under subsection (a) of this section shall be ambient air quality standards the attainment and maintenance of which in the judgment of the Administrator, based on such criteria and allowing an adequate margin of safety, are requisite to protect the public health.


Overview of National Primary Ozone Standard

Year Standard Set Level Averaging Time

1971 0.08 ppm. 1-hour

1979 0.12 ppm 1-hour

1997 0.08 ppm 8-hour

2008 0.075 ppm 8-hour


• Public Perspective– Expectation of Success: Attainment is an absolute

requirement

– Sense of Fear: Failure to attain leaves health at risk

• Reality– Virtually no major US city meets the ozone NAAQS

and hasn’t for 35 years

– The health risk is primarily among a small but susceptible portion of the national population


• Political Dynamic– Attainment is a state responsibility – even a local one– Most cities’ emissions are dominated by transportation

sources; no elected official wants to tell voters to stop driving

– Politics drive two directions – get motor vehicle emissions reduced by manufacturers and find new industrial sources to regulate

• One is a national process; the other leads to expanding the regulatory areas to find new industrial sources to regulate

– With attainment unrealistic, costs keep increasing because there is no stopping point


• Certainty– Environmental management involves substantial

investments

– When investments are made, there needs to be a sense that requirements will not change quickly or unpredictably

– Projects compete for capital – many on a world scale – when certainty is absent, capital will flow elsewhere

– Clean Air Act• New Source Review


• New Source Review– Clean Air Act structure includes requirement that new

industrial facilities use new technology – New Source Performance Standards

– Modifications create a challenge• When modifications increase emissions, general view that

technology upgrade required

• NSR issue became focused on whether modifications that did not increase emissions should also require new emissions technology


• New Source Review– The hard choice – a facility that improves its

energy use: emissions do not increase but throughput does

– From industry’s perspective, does the policy encourage additional investment or does it compel substantial new control costs without a return on those costs?


• Coordination– Some environmental challenges are more significant

than others

– Driving environmental management from multiple uncoordinated directions

• Strains capital demands

• Produces burdens that are inconsistent, driven by different standards

• Can overwhelm the compliance process

– Can seem to be regulation for regulation’s sake


• Coordination– Oil and gas production

• SPCC – Clean Water• Stormwater – Clean Water• Aggregation of sources – Clean Air• Small engine regulation – Clean Air

– Burden – particularly on small businesses – can be overwhelming and discourage continued operation of marginal wells

Can the US Address These Challenges?

• Environmental policy in the US is driven by a myriad of laws – Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Safe Drinking Water Act, Superfund– Congress develops laws through its committee process;

committees jealously guard jurisdiction– Laws set different environmental standards and

different technology requirements– Laws do not allow trade-offs between different media

– Providing some trade-off capability would run counter to environmental stakeholders in each area – “backsliding”


• Unlikely that Congressional structure and political will would allow any modifications

Congressional Jurisdiction

Environmental Law Senate Committee House of Representatives Committee

Clean Air Act Environment and Public Works Energy and Commerce

Clean Water Act Environment and Public Works Transportation and Infrastructure

Resource Conservation and Recovery Act Environment and Public Works Energy and Commerce

Safe Drinking Water Act Environment and Public Works Energy and Commerce

Superfund Environment and Public Works Energy and Commerce & Transportation and Infrastructure


• Federal structure– Federal laws set national structure– States largely regulate under a delegation

process– States can generally be more stringent than the

federal laws– Unlikely that the federal-state relationship will

change


• Adversarial Society– All permitting decisions subject to judicial

challenge– Project opponents regularly challenge decisions

• Challenges generally increasing

– Unlikely that judicial options will be changed

International Implications

• Industry choices increasingly international

• Countries that provide a more straightforward set of options can pull investment

Industry Perspectives Industry Weighs Capital Options Factors That Can Affect Decisions –Benefits...

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