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Regulatory: The Meltdown of National Energy Policy

John CooneyEvents over the last month have illustrated the difficulty of establishing a coherent national policy concerning the fuels that will power our society. While the Obama administration has articulated its preferred approach, the actual policy will be determined by market forces and a series of largely uncoordinated decisions reached within many separate statutory schemes. In recent days, potential regulatory choke points have emerged simultaneously for all major fuels.

The country's baseload source of energy is coal. The EPA has announced new rules to limit emissions of greenhouse gases and toxic airborne chemicals (including mercury, arsenic) from electric power plants, which may require retirement of older facilities that cannot be upgraded cost-effectively. The agency also is considering whether to tighten the core air pollution rules (the National Ambient Air Quality Standards, which limit air emissions of such chemicals as ozone and sulfur dioxide based entirely on their health effects), although the schedule has slipped since the fall elections. The EPA has taken steps to restrict coal mining by mountain top removal and is considering an option under which coal ash wastes would be treated as hazardous wastes. Taken together, these regulatory initiatives will increase the relative costs and decrease the attractiveness of coal-fired electricity.

Until March 11, the administration's energy policy ad contemplated greater reliance on nuclear power to compensate for the de-emphasis of coal-fired electricity. This approach suffered a serious reverse as a consequence of the Fukushima meltdown. The process of designing and permitting new domestic nuclear generating stations, which previously might have taken a decade, will become more rigorous and stretch out many years further, which will complicate efforts to finance these expensive projects. Moreover, the United States has never implemented a coherent policy for disposing of nuclear generation wastes. After the Japanese experience, the public will have a better understanding of the risks of storing spent fuel on-site at nuclear facilities near populated areas and may press for changes. The administration has, however, abandoned its predecessors' plans for long-term storage of these wastes at Yucca Mountain.

The country's policy toward oil remains schizophrenic as the price of gasoline passes $4per gallon. The administration initially supported increased offshore drilling, but abandoned that plan weeks later after the Deepwater Horizon tragedy. The Department of the Interior then imposed two drilling moratoria, which it was forced to abandon under pressure from the federal courts, and then switched to a slow motion approach to issuing new drilling permits. Due to White House ambivalence, the State Department has slowed consideration of an application for permission to construct a pipeline to import oil derived from Canadian tar sands. The administration also has, out of necessity, had to jury rig a strategy to accommodate the social revolutions that are sweeping oil producing regions in the Middle East and finds itself utilizing force in a third conflict with little political planning.

Finally, projected expansion of production of natural gas, the substitute fuel with the most favorable greenhouse gas profile, will be slowed by the EPA's efforts to determine the public health risks and the appropriate regulatory response to "fracking," the process of high pressure injection of chemicals into rock formations to free petrochemicals.

Our "energy policy" will emerge by default, as the result of the sum of these smaller, uncoordinated regulatory decisions. One constant is widespread magical thinking about the speed with which alternative energy sources can be developed and introduced on a large-scale, and about their likely costs relative to current sources of energy.

John F. Cooney is a partner in the Washington, D.C., office of Venable.

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