Acid Rain... Making Sensible Policy

Spurred by mounting concern about acid deposition, Congress is considering reducing total annual emissions of sulfur dioxide, the gas that apparently is its major precursor. The issue is full of questions—how much to cut back, how to apportion cuts among the forty-eight contiguous states, whether nitrogen dioxide emissions should be included and whether—and if so, how—the cost of the reductions should be subsidized. This article concentrates on an equally important question: How much discretion about the means of reducing sulfur dioxide should be given the electric utilities and other sources that would be affected by any reduction that Congress might wish to mandate?

Two broad approaches have emerged to this last question. Under the first, affected sources would be given complete freedom to choose how they would meet mandated reductions in sulfur dioxide emissions. They could switch to coal or other fuels with a lower sulfur content, install complicated devices known as scrubbers that remove sulfur dioxide from flue gases, "wash" the coal prior to burning it, or use a combination of these means or any others. Under the second approach, many sources would be given no latitude in selecting control measures. Rather, they would be forced to reduce their sulfur dioxide emissions with scrubbers.

For reasons to be discussed shortly, the former approach has come to be referred to as the least-cost alternative. When compared to forced scrubbing, it would save U.S. citizens a considerable sum of money—$20 billion in capital costs alone over the next ten years—and, on net, create 5,600 additional jobs in mining and transportation at a time when employment is a particularly important national concern. However, the least-cost alternative apparently would result in some job shifts or losses for miners of high-sulfur coal in a few regions because of a probable shift to low-sulfur coal by many large utility power plants. It is these location-specific job losses that the forced scrubbing approach is designed to prevent.

Federal protection for coal interests

Nearly every administration and Congress since 1932 has come under pressure to assist the citizens of Appalachia by protecting from domestic and foreign competition or otherwise subsidizing the coal companies that operate there. The arguments for such protection have ranged from national security to market failure.

This pressure was resisted until recently. Instead, where federal action seemed called for, Congress opted for income assistance and social service programs targeted at affected individuals and regions rather than at industries. The creation of the Appalachian Regional Commission and the Great Society programs in the Kennedy and Johnson administrations are perhaps the best examples.

In 1977, however, Congress reversed nearly thirty-five years of bipartisan precedent. Bowing to pressures from special interest groups, Congress amended Section 111 of the Clean Air Act, which deals with federally established emissions standards for new sources of air pollution. Specifically, Congress mandated that any newly constructed electric power plant meet the emissions limit established in the Environmental Protection Agency's 1971 new source standard via technological means—scrubbing.

This only thinly veiled attempt to protect high-sulfur coal producers in one small part of the country has been criticized as a needlessly expensive way to reduce sulfur emissions from new power plants, and also for apparently exacerbating acid deposition in the eastern United States, where some of the most sensitive ecological areas are located. (If this view is correct, it is indeed ironic that an approach that has increased acid rain now is advanced as a partial cure.) It is against this history that the current debate over controls on existing power plants and other sources should be viewed.

Pros and cons of the alternatives

Before discussing the strengths and weaknesses of the least-cost alternative and of forced scrubbing, let us be clear about their environmental effects: they are identical. Both are designed to achieve the same aggregate annual reduction in sulfur dioxide emissions, and whatever effects such a reduction would have on acid deposition would be identical as between the two plans. Thus, the cost savings and favorable overall job impacts associated with the least-cost approach would not come at the expense of environmental quality.

In comparing the two plans, I rely primarily on an analysis prepared by ICF Incorporated for the Alliance for Clean Energy (referred to here as the ICF report). This analysis is consistent with those conducted by ICF for the EPA and other interested parties. Like all analyses, its conclusions depend critically on underlying assumptions and the data on which the appropriate models are estimated—in this case, data and assumptions about coal prices and availability, labor productivity and wage rates, pollution control costs, and other factors. While it is important not to attach too much certainty to the estimates, I believe they represent the best available information about expected results.

The forced scrubbing alternative analyzed in the ICF report is that embodied in H.R. 3400, introduced by Reps. Henry A. Waxman (D-Calif.) and Gerry Sikorski (D-Minn.). This bill would give some power plants the flexibility to select how to reduce sulfur but would force the fifty "dirtiest" plants to install scrubbers to meet their mandated reductions. H.R. 3400 is selected as the basis for comparison with the least-cost approach only because its specific provisions make cost and employment estimates possible. The qualitative conclusions in this article would apply equally to other forced scrubbing approaches.

Cost impacts

Almost all of the fifty power plants targeted for scrubbers under H.R. 3400 could reduce sulfur dioxide emissions at less cost by shifting to low-sulfur coal. Indeed, the savings would be substantial. Between now and 1995, forced scrubbing would require an additional $20 billion in capital investment in the electric utility industry compared to the least-cost approach. This would, of course, have to be shouldered by electricity ratepayers already troubled by recent cost increases, or by others no more eager to bear the burden.

Even after taking into account the increased price of low-sulfur coal expected to result from added demand, the least-cost approach would save $1 billion annually when compared to the forced scrubbing route. (ICF's estimates of these savings thus are less than $1.6 billion per year estimated in a July 12, 1983, staff memorandum issued by the Office of Technology Assessment.)

Overall job impacts

Many programs that rank high with respect to one criterion do less well when measured against another. Thus, it is possible that the least-cost approach to acid rain control, while saving considerable amounts of money, might have unfavorable effects on, say, overall employment when compared to the forced scrubbing alternative. But no: according to the ICF report, the least-cost alternative would result on net in 5,600 more jobs by 1995 than the more expensive forced scrubbing approach. Some 1,500 additional coal miners would be employed under the least-cost approach as jobs open up in low-sulfur coal mines in both eastern and western states; and 4,100 new jobs would be created for coal transportation workers on trains, trucks, and the barges that would move on U.S. intracoastal waterways, the Great Lakes, and ocean shipping routes.

Moreover, in broad terms the distribution of job shifts would appear to be quite even under the least-cost alternative. For instance, the states that comprise Appalachia would be better off under the least-cost alternative than the forced scrubbing approach by nearly 9,000 jobs. Similarly, the states of the Northern Great Plains as well as the rest of the western states would fare better by a combined total of about 19,000 new jobs. One region—the Midwest—does less well under the least-cost approach, a problem taken up below.

At a more disaggregated level, only four states—Illinois, Ohio, Maryland, and Missouri—would suffer net mining job losses from 1980 employment levels under the least-cost option, with predicted losses in the latter two being nearly indistinguishable from zero. On the other hand, 21 states would enjoy an increase in coal-mining jobs relative to 1980 levels. While the jobs gained in coal transportation cannot reliably be allocated to states or regions, they too should be evenly distributed given the additional low-sulfur coal that will be mined in both the eastern and western United States.

Clearly, without some saving grace, the forced scrubbing option could scarcely long survive careful scrutiny. In fact, it does appear to have one important advantage over the least-cost approach.

Localized job losses

The sole advantage to forced scrubbing is that under that approach, no coal-producing states would have fewer people employed in mining in 1995 than were employed in that industry in 1980. This cannot be said of the least-cost alternative. Even though its overall effect would be 5,100 more jobs in mining and transportation than would result from forced scrubbing, it would leave two states—Ohio and Illinois—with a combined total of 17,600 fewer mining jobs in 1995 than now exist. Maryland and Missouri would lose 300 jobs between them. By way of contrast, West Virginia—which borders Ohio to the south and east—would gain 49,400 mining jobs from increased low-sulfur coal production under the least-cost alternative. Job gains in Kentucky—which forms part of the southern boundary of Illinois—would amount to 12,200. New mining jobs in New Mexico, Virginia, Pennsylvania, and Texas all would exceed 6,000 by 1995. But Illinois and Ohio indeed would lose jobs as the high-sulfur coal mined there gave way to cleaner coals mined nearby in the East and in western states, as well. Before discussing what might be done to cushion this disadvantageous feature, it is useful to examine these predicted job losses carefully and to place them in perspective.

In Illinois, the 9,800 jobs that would be shifted elsewhere amount to less than one-fifth of 1 percent of total employment of that state. The corresponding percentage is even lower for Ohio.

It also is instructive to view the predicted shifts in 17,600 jobs in Ohio and Illinois against the secular trends in employment in coal mining. Between 1923 and 1969, employment in bituminous coal mining in the United States fell from more than 704,000 to fewer than 125,000, a decline of 82 percent. By 1979, however, employment in America's mines had doubled to more than 250,000 and is expected to increase to nearly 350,000 by 1995.

No matter how familiar miners may be with secular or short-term fluctuations in employment, however, involuntary unemployment is a debilitating prospect. Moreover, the two states where mining employment would be adversely affected both have suffered recent reversals in employment in other basic industries, steel and automobiles being the best examples. It is worth giving special attention to their plight.

Retirements among an aging workforce and secondary employment effects associated with the expansion of low-sulfur coal mining may well lower the total number of jobs affected. Still, the job shifts that would occur should be viewed as serious impediments to the least-cost approach. Because it otherwise is so very attractive in terms of cost and in overall employment effects—it is worth considering measures to ease the adverse impact of pursuing the least-cost option.

Easing job shifts

Of the many ways to soften any adverse employment effects of the least-cost option, three general methods are discussed here. The first would involve the companies that stand to benefit from the least-cost approach. Specifically, companies mining or transporting low-sulfur coal ought to offer first rights of refusal for the new jobs they can anticipate to those in Ohio and Illinois likely to be displaced by the shift to cleaner coal. In fact, in view of the financial stake involved, these companies could make a concerted effort to identify and even help relocate affected parties.

Relocation would not necessarily be very costly, as much of the new production under the least-cost option would come from West Virginia, Kentucky, and Pennsylvania—all close to the affected areas. In fact, in the Appalachia and Midwest coal-producing regions, new hires are estimated at 17 percent of the total number of coal miners each year. This implies about 37,000 new openings annually, or about twice as many as the number of miners in Ohio and Illinois likely to be displaced. In addition, the mining equipment companies in the East North Central states that will see their business expand might be expected to give precedence to displaced miners in hiring decisions not involving specialized technological skills. A commitment of the sort described here even might be made part of any legislation that Congress passes to deal with acid rain.

In recent years, Congress has created more than twenty different programs to assist workers dislocated for various reasons, including airline deregulation, consolidation of the railroad system, expansion of the Redwood National Park, competition from imported goods and services, and many others. Thus, under a second approach, such a program could be established to assist coal miners adversely affected by the least-cost approach to reducing sulfur emissions.

Assistance might take a number of different forms. Dislocated workers might be assured full salary for several years if they could not find new work, with the amount of assistance declining with time as new opportunities became available to them. If miners do find new jobs, but at wages less than those earned in mining, the compensation might replace the full difference for a period of years and decline annually thereafter. Alternatively, compensation could be provided in lump-sum payments. Assistance could take other forms besides direct compensation. For example, programs could be established to help miners search for new jobs; these might be administered through the United Mine Workers or other unions with which they are affiliated, or through state human resource departments or regional economic development organizations. Alternatively (or in addition), special retraining or relocation assistance or both might be provided.

However, special compensation programs can pose a number of difficulties. It is not always clear, for example, who are deserving recipients: some miners may leave jobs of their own volition or for other reasons unrelated to fuel switching. Also, to what degree, if at all, should compensation go to those whose jobs are threatened by fuel switching even though they are not directly employed in the mines, those, say, who sell equipment to companies mining high-sulfur coal? Drawing the line on compensation is no easy matter.

Knotty problems also arise in the design of payment rules if a compensation program is adopted. Will compensation continue to be paid even if the worker is quickly reemployed? If so, the apparent fairness of the program is threatened. If not, dislocated workers will have little or no incentive to search for new jobs, at least while they are receiving full benefits. These and other issues must be confronted in the design and operation of a special compensation program.

Equity considerations

It is important to keep in mind that the coal miners would not be dislocated through any reversal of previous government policy, or even by some new policy that would fundamentally alter the rules of the game. With few exceptions, existing power plants always have had the option to meet their emission limits via the purchase of low-sulfur coal. The least-cost alternative merely would extend that policy to the additional sulfur reductions thought to be necessary to address the problem of acid rain. In fact, it is the forced scrubbing approach that can be seen in this light to represent a fundamental shift in federal policy.

That miners dislocated by the least-cost alternative would not in any sense be double-crossed tends to undercut the rationale for special compensation and underlines the usefulness of viewing their very real plight as akin to that of steel, automobile, textile, or other workers who suffer because of inevitable, long-term changes in the industries in which they are employed. This suggests that equity would best be served by not differentiating between those who lose their jobs because environmental policy is sensibly designed and those disadvantaged by foreign competition, declining domestic demand, or a whole host of other reasons.

In other words, perhaps the best way to deal with the dislocations that might result from the least-cost alternative is as part of a comprehensive national program aimed at reducing unemployment. Because of the geographic dimensions of the problem, such a program no doubt would be targeted in particular at those very regions where mining dislocations are expected to occur. It would, therefore, assist not only miners but also steel, auto, and other dislocated workers. A national employment program might include job search and relocation assistance, educational or retraining programs, and perhaps public employment where legitimate purposes can be served, as with infrastructural improvements and the like. This is always to be preferred to indirect and hidden measures that poorly serve both employment and environmental policy.

A clear choice

In pointing out how unemployment—and especially that resulting from otherwise clearly desirable policies—is best addressed broadly and directly, we return to the historical background with which this article began. The message of that section is clear: until 1977, Congress always dealt directly with unemployment in mining areas through regional or nation-wide policies that also would extend to other deserving individuals. No attempt was made to assist miners by propping up the mining industry artificially.

It would be well to keep this record in mind when weighing the alternative approaches to controlling acid rain. For while it perhaps is not obvious, forced scrubbing is no more than a domestic tariff on low-sulfur coal designed to protect those who own and mine high-sulfur coal. While economists may disagree on much, they are in nearly unanimous agreement on the potentially very harmful effects of such tariffs. Forced scrubbing would offer job protection to some, but only at the expense of even greater job losses to others and the additional loss of $1 billion per year. If implemented, such a policy eventually would harm even those it would protect in the short run. As there are a number of ways the nation could take advantage of its vast reserves of low-sulfur coal while at the same time assisting those harmed by such an approach, the way seems clear.