Regulatory Uncertainty in the Obama Administration

Source: Reason.com

“Wish we could nail it, but we can’t.”

Exelon CEO John Rowe on future nuclear regulations

Some on the left have complained that the right frequently blames Obama for a bad economy, because his administration creates a great deal of regulatory uncertainty for businesses. They claim these charges are based on little but anecdotal evidence, and challenge conservatives to find any historical and/or empirical data to support the contention that regulatory uncertainty can harm businesses.

It so happens that there are five clear examples of how regulatory uncertainty can make it difficult for businesses to plan future operations, and thereby impose barriers to economic activity. Not surprisingly, four of these examples occurred under the Obama administration.

The Production Tax Credit and the Wind Industry

Source: U.S. EIA

The first example of how regulatory uncertainty directly impacts businesses is how the uncertainty surrounding the protection tax credit (PTC) wrought havoc on the growth of the American wind industry.

 According to the American Wind Energy Association (AWEA), the PTC:

“[P]rovides an income tax credit of 2.2 cents per kilowatt-hour for the production of electricity from utility-scale turbines. This incentive was created under the Energy Policy Act of 1992. The PTC applies for the first 10 years of electricity production. It is set to expire on December 31, 2012.”

As the chart above shows, the PTC expired three separate times in 1999, 2001, and 2003. Each time, wind capacity additions (i.e., the installation of new wind turbines), declined in the following year in 2000, 2002, and 2004. Because businesses had no clarity from the government on a PTC extension during these periods, many of them simply stopped building turbines.

The Patient Protection and Affordable Care Act and Private Sector Job Growth

Source: U.S. Bureau of Labor Statistics, Heritage Foundation

A second example of how regulatory uncertainty is a barrier to economic growth comes from the blog, Tarheel Red. It appears that the passage of the mammoth Patient Protection and Affordable Care Act (PPACA) of 2010 is highly correlated with the rate of change of private sector job growth. Prior to President Obama’s signing of “Obamacare” on March 30, 2010, the addition of new monthly private sector jobs was growing at an average rate of ~70,000 jobs per month. After the Bill passed, this rate declined by over 90% to ~6,000 jobs per month.

The rate of change of private sector job growth declined immediately after Obamacare became law, because it created enough uncertainty for businesses that they decreased their hiring rate.

It makes a good deal of intuitive sense. If you are running a business, and do not have good visibility on how much a future employee will cost with the new healthcare provisions, you will be more likely to delay hiring. You will wait to hire, because you do not have full visibility on what the program will actually cost your business for each employee you add.

Business Expansions into Right to Work States

The Obama Administration is even challenging the right of businesses to build manufacturing plants in any of the 50 states. Last March, the National Labor Relations Board (NLRB) filed a complaint against Boeing for its decision to set up a non-unionized production line in South Carolina. The complaint alleges that Boeing is locating a second production line in that state to retaliate against striking union workers in Washington State.

Since 1989, there have been four strikes at Boeing’s Washington facility. The last strike lasted eight weeks and cost the firm $2 billion.

In 2009, Boeing invested $1 billion in a new factory in South Carolina, a right-to-work state, and hired 1,000 local workers. Had Boeing then laid off 1,000 workers in Washington State, the NLRB might have had a case.

However, Boeing actually increased its Washington workforce by 2,000.

This lawsuit is unprecedented, and could affect every manufacturing business in the United States that is considering building a plant in a right-to-work state. While the government conducts its union-backed witch hunt against Boeing, most manufacturing businesses will likely wait on the sidelines before building new production facilities in right to work states. The net result is less overall economic activity, solely because of the regulatory uncertainty this lawsuit creates.

Uncertainty Regarding Increased Nuclear Regulatory Costs

In the wake of the Japanese earthquake, tsunami, and subsequent nuclear meltdown, the NRC is heavily scrutinizing American nuclear power plants, and is expected to come up with new rules that will likely significantly increase the cost to maintain a nuclear reactor over the next 3 to 5 years. Nuclear executives have no idea what these costs will be, nor will they know for at least another six months. Because of rising regulatory costs, some nuclear executives doubt the U.S. nuclear industry will be able to expand in the near-term. Exelon CEO, John Rowe, suggested there is “little opening for new nuclear plants in the near future,” based on simple economics, not safety concerns.

Regulatory Uncertainty in Offshore Drilling

Source: U.S. EIA, ©2011 Reflections of a Rational Republican

Obama Administration policy and regulatory uncertainty are also having a negative impact on U.S. offshore oil production. When President Obama first took office in January 2009, there were 66 offshore oil and gas rigs operating off the coast of the United States. In June 2011, there were only 34.

According to the Fitch Rating Agency, regulatory “uncertainty and the limited issuance of drilling permits in the [Gulf of Mexico] are expected to result in upstream spending being diverted to other markets during 2011.” While President Obama has ended the drilling moratorium, the administration has issued only a limited number of drilling permits. Additionally, a clear understanding as to what liabilities companies drilling in the Gulf of Mexico will be responsible for in future accidents, is negatively impacting oil production. The U.S. Energy Administration has estimated that this decline in activity will result in a 13% decline in U.S. offshore oil production in 2011.

The bottom line is that regulatory uncertainty hurts businesses, and the Obama Administration has generated a fair amount of regulatory uncertainty.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, Clean Energy, Clean Tech, Finance and Economics, Healthcare, Media, Nuclear Power, Policy, Politics, Taxes, Technology, Unions, Wind and tagged , , , , , , , , , . Bookmark the permalink.

15 Responses to Regulatory Uncertainty in the Obama Administration

  1. Thanks for your reply!

    #1: “the PTC expired three separate times in 1999, 2001, and 2003.”

    So, blaming the Obama administration for an unusual climate of regulatory uncertainty– much less blaming said uncertainty for the poor economy– makes no sense.

    #2: “the passage of the mammoth Patient Protection and Affordable Care Act (PPACA) of 2010 is highly correlated with the rate of change of private sector job growth.”

    The signing is also highly correlated with a dropoff in the rate of Chinese economic growth, the rate of US gdp growth, and the winning percentage of the Cincinnati Bengals.

    It makes a good deal of intuitive sense. If you want to blame bad things on an event without having to establish any empirical connection, it’s very easy to point to two things that happened around the same time and claim a causal relationship without any data or much rationale.

    #3: One lawsuit that you don’t like != a climate of regulatory uncertainty that’s dragging down the whole economy.

    #4: Haha, stupid NRC, scrutinizing applications for nuclear plants! Why would anyone do that?

    Also: of the 104 reactors now operating in the U.S., ground was broken on all of them in 1974 or earlier.

    So, blaming the Obama administration for an unusual climate of regulatory uncertainty– much less blaming said uncertainty for the poor economy– makes no sense.

    #5: Wow, it was really mean for the Obama administration to pick on the offshore drilling industry for no reason out of the blue like that. In light of events, increased scrutiny was called for. I’m open to the argument that they could’ve done it better; haven’t followed it very closely.

    The bottom line is that the problem with the economy is collapsing demand. Blaming it on “regulatory uncertainty” makes no sense– especially when examples of said uncertainty are so sparse, and explanations for how said uncertainty is negatively affecting the economy are so meager.

    • “#1: “the PTC expired three separate times in 1999, 2001, and 2003.”

      So, blaming the Obama administration for an unusual climate of regulatory uncertainty– much less blaming said uncertainty for the poor economy– makes no sense.”

      Notice at the beginning of the article that I said four out five of these examples are due to regulatory uncertainty during the Obama administration. This is obviously, the fifth example. I wanted to demonstrate how regulatory uncertainty can lead to low demand.

      “#2: “the passage of the mammoth Patient Protection and Affordable Care Act (PPACA) of 2010 is highly correlated with the rate of change of private sector job growth.”

      The signing is also highly correlated with a dropoff in the rate of Chinese economic growth, the rate of US gdp growth, and the winning percentage of the Cincinnati Bengals.”

      This is a weak argument. There is no direct link that you can establish between these things and health care legislation. However, there is a direct link between rising employee costs and hiring decisions. Please prove to me that there isn’t. Do I need to provide you with empirical evidence that the sky is blue? Need more data? Here’s an employer survey on Obamacare: http://www.tlnt.com/2010/05/20/the-cost-of-obamacare-one-in-four-businesses-think-it-will-be-3-more-in-2011/

      “#3: One lawsuit that you don’t like != a climate of regulatory uncertainty that’s dragging down the whole economy.”

      I never once made the argument that Obama’s regulatory uncertainty is the sole reason the economy is bad, and certainly am not saying this law suit is bringing the economy down by itself. What I am arguing is that regulatory uncertainty is one of several factors impeding the economic recovery. It seems to me that you are arguing it has no effect, which I think ignores the data. This lawsuit is just another example amongst many, that demonstrates that the regulatory uncertainty in the Obama administration is not helping.

      “#4: Haha, stupid NRC, scrutinizing applications for nuclear plants! Why would anyone do that?

      Also: of the 104 reactors now operating in the U.S., ground was broken on all of them in 1974 or earlier.”

      You are right. Because of regulatory uncertainty from multiple administrations. President Obama is simply introducing more regulatory uncertainty to the mix. That’s all.

      “The bottom line is that the problem with the economy is collapsing demand.”

      You are correct, but collapsing demand does not just magically appear. It is the result of a number of complex factors including consumer de-leveraging, unemployment, fear, etc. The Obama Administration’s regulatory uncertainty only serves to pile on this process because fewer people are hired, which leads to collapsing demand, etc. I am not arguing it is the sole contributor, but it is a contributor. Prove to me it is not.

      By the way, the FTC just initiated another trade action against Google this morning. More impeccable timing from the tone deaf Obama administration.

      Blaming it on “regulatory uncertainty” makes no sense– especially when examples of said uncertainty are so sparse, and explanations for how said uncertainty is negatively affecting the economy are so meager.”

      • dedc79 says:

        with respect to the wind example, it seems distinguishable for another reason as well – the govt regulation referred to is actually a tax incentive to stimulate growth in the industry. It is designed to encourage more wind power production not to regulate that industry. This is far different from, say, not knowing if you will be able to drill for oil in the gulf of mexico because of new federal regulations.

      • However, there is a direct link between rising employee costs and hiring decisions. Please prove to me that there isn’t. Do I need to provide you with empirical evidence that the sky is blue? Need more data? Here’s an employer survey on Obamacare: http://www.tlnt.com/2010/05/20/the-cost-of-obamacare-one-in-four-businesses-think-it-will-be-3-more-in-2011/

        Well, first off, dropping GDP growth of the sort I mentioned, in the US & elsewhere, is a better explanation for declining employment than attributing it, w/o any data, to a law in Congress.

        But ok, now we have substantiation for the assertion that the ACA is providing uncertainty/raising costs. You linked to a survey from May, 2010, about the link between health care reform & employment costs. In that survey, one out of four businesses expected health care costs to rise by three percent or more in 2011. It’s outdated, and it’s not that strong to begin with. It’s certainly not as immediate an impact on unemployment as the fact that we’re in a worldwide downturn, as indicated by the decline in growth in gdp in China & the US. (That point was probably lost in my sarcasm; I’m sorry for that).

        I am not arguing it is the sole contributor, but it is a contributor. Prove to me it is not.

        The person making the affirmative assertion generally has the burden of proof.

        It seems to me fair to say that regulatory uncertainty accounts for about 0.05% of the problem of collapsed demand. Prove to me it is not.

        By the way, the FTC just initiated another trade action against Google this morning. More impeccable timing from the tone deaf Obama administration.

        I missed that story. What did the FTC do? Why do you disagree with the FTC’s actions?

        • It turns out that in the quarter President Obama signed the PPCA, the US economy was growing at 5.5%. In the quarter that followed, US GDP growth was 5.4%, yet hiring decelerated dramatically. Overall, economic growth in 2010 was a respectable 4.2%, yet job growth continued to decelerate. Of course, less hiring and long-term unemployment, eventually begin to drag on demand, and resulted in GDP o 3.1% annualized in the first quarter of 2011.

          So the decline in hiring during that time period seems less tied to GDP growth (which was strong), and more with businesses reacting to policy uncertainty. Since then, as demand has dried up, I would agree that lackluster demand is now primarily the driver of the deceleration in hiring. However, in 2010, it clearly was not.

          The FTC’s panties are in a bunch, because Google is building it’s business beyond mobile search, particularly with the launch of it’s Android platform. Basically Microsoft is using the government as a crutch to better compete with Google.

  2. Chris Van Trump says:

    I think it makes for a potent commentary on the situation in the nuclear regulatory sphere that the fourth generation reactor designs have BEEN the fourth generation reactor designs for nigh-on thirty years, most of them, and a few have been at least hypothetical for almost SIXTY years.

    Wrap your head around that concept for a moment.

    4th-gen reactors, if they work as advertised (and there were test programs for many of the reactor designs that indicated they would), would generate vastly less waste than current reactors, be able to run on a much wider range of fuel than current reactors, be at least 100 times more efficient than current reactors, and what waste they did produce would be radioactive for a much shorter time.

    But.

    The outright paranoid nature of the regulatory sphere, coupled with what amounts to semi-functional hysteria drummed up in the public, has meant that there has been no incentive for private industry to develop the 4th-gen reactor designs to completion.

    Why design something you won’t be able to build, after all?

    Government has conducted research on the designs, in a rather desultory fashion, but nothing truly significant, when you consider the benefits that are potentially within reach.

    And when I say “hysteria”, I mean exactly that. Recently there was a criticism of the AP1000 reactor design by one of these anti-nuclear hysterics. He posited that if the inner liner of the reactor containment vessel rusted through, the reactor could vent radioactive gases into the atmosphere, and the public could be exposed to “ten times than the NRC limit”.

    Sounds dire, no?

    Except when one considers the NRC limit.

    It’s 100 millirems. Per year.

    Ten times that dose is still 1/5th what a nuclear plant worker is permitted to receive. Hell, you’ll get THREE times the maximum dose just living in a stone house.

    • Chris,

      You seem to know a ton about nukes. What are you up to these days?

      • Chris Van Trump says:

        Back in school to become an elementary school teacher, as it turns out.

        I just love arguing on the internets. And I’ve been a proponent of nuclear power since I was about ten years old. Combine those two aspects with a love of science fiction, and I’ve picked a few things up over the years.

        On an entertaining note, you can find a rather simple yet comprehensive radiation exposure chart on one of my favorite webcomics, xkcd. It’s in seiverts rather than rems, but the conversion is easy (100 rems to the seivert), and it can definitely put things in perspective for some people.

        http://xkcd.com/radiation/

  3. Pingback: Regulatory Uncertainty in the Obama Administration: Part II | Reflections of a Rational Republican

  4. Pingback: Proving Obama Is a Failed President | Reflections of a Rational Republican

  5. Pingback: Rational Regulatory Uncertainty | Notes

  6. Disgusted Again says:

    This is the article you wanted me to see that is supposed to confirm your stance that the health care bill is costing our economy jobs? Your argument is anemic at best. Reflectionephemeral has it exactly right, you’re trying to draw connections were none exist. The state of the U.S. and world economies are the obvious concerns for businesses, not health care “uncertainty”. Whirlpool’s recent announcement of upcoming job cuts mentioned demand and material costs, not “uncertainty” in health care costs in 2014. The cost of health care has never been certain for businesses in the past, and yet they’ve hired employees. I’m fairly certain most companies realize they can let employees go if necessary.

    • Here is a very simple example. Let’s say you want to start a business, but government requires you to purchase a permit. You don’t know how much the permit costs nor do you know how frequently you will have to purchase that permit. In that context, would you start a business or hire people?

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