The Red and Blue States' Fort Sumter

The Red and Blue States' Fort Sumter
By William Tucker on 12.28.10 @ 6:09AM

The opening shot of the War Between the Red and Blue States may have been fired last Friday when the Environmental Protection Administration announced its intention to take over Texas's authority on issuing clean air permits to new industrial facilities as of January 2.

It is hard to imagine a more stark confrontation between public and private sector-oriented economies. Texas has the strongest economy in the nation, based on its philosophy of limited government. The Texas Legislature convenes only in odd-numbered years is constitutionally limited to meeting only 140 days. Until this year, Texas has had a budget surplus and still has $7.5 billion in a rainy-day fund created by voters in 1988. During 2006 and 2007, Texas created 52 percent of all new jobs in the nation, according to a study done by the Southern Methodist University's Cox School of Business. People are flocking to the state so fast that Texas will gain four seats in the House of Representatives in the new decade.

Washington, on the other hand, has run up a trillion-dollar budget deficit and destroyed private-sector jobs all over the country while expanding the government and presiding over 10 percent unemployment. The states on the East and West Coast that adhere most closely to Washington's philosophy are approaching insolvency. Yet they continue to pursue dreamy energy agendas, trying to close down existing power plants and refusing to build new ones while planning for a world running on windmills and solar collectors.

Now Washington is going to try to impose this blue-state agenda on Texas. The struggle will dwarf the Arizona-versus-Washington contest over immigration.

In fact the conflict over energy production has been brewing for decades. As far back as the 1920s, Texan entrepreneurs built natural gas pipelines to carry their surplus gas north, only to run into Progressive Era reforms saying that utilities had to be regulated as "natural monopolies." In 1936, the Roosevelt Administration extended this municipal regulation back to the gas pipelines themselves, giving the Federal Power Commission authority to fix prices across the country. Then after endless prodding from northern consumer states, the U.S. Supreme Court finally decided in 1954 that the whole diversified collection of thousands of wildcatters and individual well owners in Texas and Louisiana constituted a "monopoly" that could be regulated by the federal government. Over the next twenty years, the D.C. Court of Appeals tried every trick imaginable to prod gas out of its Texas owners' hands. It developed the "life of the field" doctrine saying once gas had been put into interstate commerce it could not be withdrawn. Even if a well owner went bankrupt, he was still obliged to keep sending gas to northern consumers at prices fixed by federal regulators. Still, Texas managed to keep as much gas as possible at home. When the Arab Oil Boycott prompted thousands of northern businesses and residences to convert from oil to gas, the whole system collapsed in the Natural Gas Crisis of 1976, when factories and schools closed for weeks in Ohio and Pennsylvania for lack of gas. Meanwhile Texas was using gas to generate half its electricity. The Carter Administration was appalled to discover these distortions but decided to solve them in typical fashion by extending federal price controls even further into Texas as well. Bumper stickers sprouted all over Texas and Louisiana declaring "Let the Yankees Freeze in the Dark."

Fortunately, the Reagan Administration came along and solved the problem by appointing new members to the Federal Power Commission who deregulated gas prices within a decade. Prices fell as new supplies gushed forth and for the first time the nation had adequate supplies of natural gas -- so much so that we resumed the wasteful practice of burning gas for electricity after environmentalists stymied everything else. When conventional supplies peaked in 2000, however, prices quadrupled and gas-dependent industries such as plastics, chemicals, and fertilizer started fleeing for foreign shores. Once again, Texas came through, this time through a stubborn Fort Worth oil man named George Mitchell who spent ten years experimenting with various techniques of horizontal drilling and fracturing hard rock until he devised a way of "fracking" huge gas deposits out of the Barnett Shale. Once again, Texas had rescued the nation.

The pattern continues today. Offshore drilling is forbidden along the entire East and West Coasts and Florida's Gulf Coast, but continues only off the coasts of Texas and Louisiana. This exposes residents to disasters like the BP oil spill, yet unproductive portions of the country still refuse to shoulder any share of the burden. California has banned everything but ridiculous solar and wind projects while New York just cut off access to its portion of the Marcellus Shale, the second largest gas deposit in the world. Now the Environmental Protection Administration will attempt to impose this no-growth strategy on the most productive state in the nation.

Last Thursday, EPA Administrator's Lisa Jackson announced that, in response to the threat of lawsuits from environmental groups, she will impose "new source performance standards" for carbon emissions on utilities and oil refineries across the country during the coming year. Despite the name, "new source" standards apply to old sources as well. Their inevitable impact is to freeze all current technologies while preventing anything new from being built. It was this gridlock that cap-and-trade was supposed to overcome. The next day, Jackson announced that, due to Texas's stubborn resistance in cooperating with the federal effort, the EPA would take over all authority to issue permits for new facilities beginning January 2.

The stakes could not be higher. The Texas Commission on Environmental Quality (TCEQ) estimates there are 167 major projects that are shovel-ready and about to begin construction next year. Most are oil refineries and power plants but many are also major industrial facilities. EPA's permitting process for other traditional air pollutants -- sulfur and nitrous oxides, etc. -- has already slowed to a crawl. Adding carbon dioxide -- an unavoidable by-product of all forms of combustion -- will bring permitting to a dead halt. The future of the Texas economy -- and the nation as a whole -- may be at stake. If Texas stumbles, we could easily slip into a double-dip recession.

When the EPA issues new standards, it has always given the states three years to draw up "implementation programs" to meet them. In the case of carbon emissions, however, Administrator Jackson has concluded that the global warming crisis leaves no room for the traditional development period. Action would have to begin January 2. When Texas responded by going to court to challenge the accelerated schedule, Jackson responded with last week's federal takeover.

The court fight could take months to reach a resolution but is likely to be overtaken when Congress convenes in January. West Virginia Senator Jay Rockefeller, one of the most liberal Democrats in Congress, is already spearheading an effort to head off EPA's headlong rush by overturning its authority to regulate carbon emissions. A resolution sponsored by Alaska Senator Lisa Murkowski to postpone the EPA effort came close to a majority last year but would need 60 votes for cloture. With Republicans taking over the House, however, the opportunities for Congressional intervention will be numerous.

Most important, however, is that the EPA action is likely to be the opening salvo in a protracted struggle between the productive red states and the profligate blue states. The unequal burden in developing the nation's energy resources cannot persist for much longer without reaching the breaking point. In that sense, the new outbreak of hostilities at Fort Sumter could ultimately benefit the nation.