To regulate is to tax
Published October 24, 2019
By John Hood
If North Carolina Gov. Roy Cooper proposed a $5 billion tax increase, his Republican rivals would be both furious and gleeful — furious about the potential economic consequences, that is, and gleeful about the political ones.
Although the governor certainly thinks North Carolina’s tax rates ought to be higher, he couldn’t engineer a $5 billion hike even if he wanted to. But the Cooper administration has issued a single regulatory decision that, unless blocked in court, will raise the cost of cleaning up Duke Energy’s coal-ash ponds by approximately $10.6 billion, up from the original cost estimate of $5.6.
At issue is the disposition of six of Duke Energy’s coal-ash sites. While the company has already agreed to complete excavation at other locations — the ash would be removed and for the most part stored in lined landfills — it contends that the best solution for sites rated “low risk” by state regulators would be to drain and then cap the ponds with a waterproof cover and layer of soil.
Digging up and transporting the ash from those sites would not improve public health enough to justify the exorbitant cost, Duke Energy concluded. The Cooper administration disagreed, both about the company’s conclusion and about whether the cost of compliance was an appropriate consideration in this case.
Given the Cooper administration’s other choices on energy policy, which seem to run the gamut from questionable to ludicrous, I think Duke Energy is probably right about the policy here. Perhaps you disagree. At least it should be clear that we are talking about a very large price tag even if you think the environmental benefits justify it.
Legally, the extra $5 billion isn’t a tax increase. In practical terms, however, it waddles and quacks like one.
Who will pay it? As with taxes of all kinds, the set of those who are legally responsible and the set of those who will bear the real burden overlap but are not identical. State regulators have already ruled, correctly in my view, that Duke shareholders won’t be required to foot the entire bill because the ash was a byproduct of coal-fired power plants that previously received regulatory approval. Indeed, Duke Energy customers are already paying $175 million a year approved by regulators to help cover the cost of coal-ash cleanup.
But even when it comes to the share of the cost legally assigned to the company, it is likely that the real incidence will at least be divided among shareholders, workers, and vendors, regardless of regulatory intent.
To say that regulations are a form of taxation — government exactions to pay for public services — is not to say they shouldn’t be imposed. A core function of government is to protect individual rights to life, liberty, and property. Protecting those rights inevitably requires legislation, litigation, or some combination thereof.
Regulation is, in other words, not all cost. But contrary to the apparent philosophy of the Cooper administration, it isn’t all benefit, either. When it comes to chemical exposure, for example, “the dose makes the poison,” as the old saying goes. If it costs billions of dollars to reduce trace amounts to somewhat tinier amounts, the policy actually harms the public interest rather than advancing it, because the economic costs — lost jobs, incomes, and opportunities — have their own adverse consequences on public health and safety.
Taxes transfer resources from payers to government coffers and then out to contractors or recipients to accomplish public ends. Regulation typically skips the middle step, the employment of a public budget to broker the resource transfer.
As a result, regulation is less transparent than on-budget taxation and expenditure, though no less coercive or costly. Indeed, according to the best estimates available, state regulations cost North Carolinians about $26 billion annually — comparable to the state’s General Fund budget.
Gov. Cooper’s coal-ash policy will cost hundreds of millions of dollars a year. If it were an on-budget state expenditure, it would attract significant scrutiny. As a regulation, it deserves just as much.