Wednesday, April 21, 2010

Gerard: EPA Battle Could Hurt Economy

By Margaret Kriz Hobson  

The Obama administration is regulating greenhouse gases under the Clean Air Act primarily to force Congress to pass climate change legislation, argues Jack Gerard, chairman and CEO of the American Petroleum Institute. Gerard described the EPA regulations as a political "game of chicken" that could hurt the U.S. economy. Gerard, who previously headed the National Mining Association and the American Chemistry Council, also said that the president's plan to open oil and natural gas development along the U.S. coasts is not likely to help pass a climate change bill.

Following is an edited excerpt of Gerard's recent interview with National Journal.

NJ: What would be the impact on business if Congress doesn't pass a climate change bill this year?

Gerard: I think it's a very steep climb to get there. There is great diversity in the approach in the Congress. So it's a work in progress. Clearly the public is heavily focused on jobs and the economy. And so it's underneath that umbrella that these conversations continue to evolve. I think a lot of the elected officials are starting to understand that they can't take their eye off of jobs and the economy. This conversation has to be had within the context of the economic reality that we're faced with, and I think that causes a lot of people to take a more sober look at what some of these provisions might do.

So if the Congress is unable to get something passed, the EPA rulemaking [would] create great uncertainty, and unfortunately that great uncertainty would come at the very time we don't need any uncertainty. With jobs and the economy being the focus, now is not the time to chill business investment. It would clearly impact job-creating investments, discouraged expansion and new investment. So I think it's pretty significant what the impact would be on business investment as a result of the EPA rulemaking continuing to advance.

NJ: Some analysts say that without a climate bill, industry will be unsure whether to invest in clean technologies. But you're saying that the EPA regulations would create uncertainty.

Gerard: Well, it's both. The politicians have said that part of the agenda is to use the EPA's court-allowed authorities to keep the pressure on Congress to pass legislation. But if the political will is not there to pass the legislation, they have started on a slippery slope that creates even greater uncertainty through the EPA rulemaking process.

It's one thing to not be sure what the rules of the game are, but you can make a political judgment as to when Congress might accomplish this. It's quite another thing to have unelected bureaucrats with unfettered discretion decide how they're going to impact the economy. And I think that's what creates the greater uncertainty: the combination of not knowing what the rules of the game are, but having people who are unaccountable decide what the rules of the game are. It turns out to be a double whammy.

In talking to major leaders not only in our industry but elsewhere, they've said that it's absolutely the worst time to have that uncertainty. We're trying to bring the economy back. We're trying to encourage investments in new jobs and new facilities. To have the EPA activity overhanging that is not good in the current economic atmosphere.

NJ: If a climate bill isn't passed, a lot of energy experts say more electric companies are likely to build natural gas plants. Do you agree?

Gerard: The potential for natural gas in the United States has grown tremendously just over the past few years. The vast supply that we have been able to identify and produce as a result of modern technology is unprecedented. So is the demand from the marketplace as people recognize that gas is a great bet. We certainly hope that the marketplace will recognize that and start to build to the future and build more natural gas facilities.

It's a cleaner-burning fuel and obviously would allow you to reduce your emissions, and there is a vast abundant supply of it. The market will eventually sort out the rules [for extracting natural gas from shale formations deep underground]. What's very important, though, is that any rules that come into effect or any legislation that's passed that imposes additional hurdles on natural gas is bad legislation. Some have said the House bill would do that. Many believe the House bill created a scenario that would hurt natural gas.

NJ: Can proponents of climate change legislation win votes by including oil and gas provisions in their bill?

Gerard: It obviously depends on how people view the issue. From my perspective, because of the job-creating and revenue-creating potential, [the oil and gas provisions] should be able to pass freestanding. They should be able to go through on their own. It really becomes a question of who wants to leverage what.

NJ: It sounds like you're not convinced that the oil and gas provisions will help pass a climate bill.

Gerard: There are a lot of people that are big proponents of domestic energy production who are probably less inclined to support mandatory caps on climate.

NJ: If a climate bill doesn't pass this year and more Republicans are elected in the fall congressional elections, you might not see legislation for several years. Would that create investment uncertainty for business?

Gerard: People have to do the political calculus on how much risk is involved in the public policy process. I'm not sure what this fall holds. But I believe the Congress does need to deal with the realities of energy policy. And, as they begin to put that together, if it has an environmental component, that would be one form that it could take.

We think that there has to be serious talk about an energy policy. If that turns out to be comprehensive energy and environment, so be it. But they've got to sit down and be realistic and quit polarizing these issues.

NJ: So from your perspective, the biggest negative impact from postponing a climate bill would be that EPA would regulate industrial greenhouse gases?

Gerard: EPA could create a very significant uncertainty. That's as much uncertainty as we probably ever had in this area of energy and the environment. So don't misunderstand -- 'Well, it's just the EPA.' The EPA has a very large hammer here and they are accountable to no one but for the political forces that are inside the White House. So that's what creates the uncertainty. From our vantage point, it's very important. The EPA action is designed to put political heat on Congress. But now they're on a slippery slope.

This could be a huge cost to our economy for a game of chicken. And we don't think that's good public policy. We don't think that we should be so cavalier about the impact on our economy.

NJ: Obama administration regulators say they were ordered by the 2007 Supreme Court decision to regulate climate change if they found it to endanger health and the environment.

Gerard: The court has put them under no deadline or timeline for doing this. And some of us feel strongly that they should deal with the car rule issues and satisfy the court in the short term. And then work the Congress to do something in a more comprehensive way.