Pages 835-1204: Submissions To Darrell Issa Regarding Federal Regulation: February 7, 2011

CHAMBER OF COMMERCE
OF THE
UNITED STATES OF AMERICA
WILLIAM L. KOVACS
1615 I-I STREET, N.W.
SENIOR VICE PRESIDENT
WASI-IINGTON, D.C. 20062
ENVIRONMENT, TECHNOLOGY &
(202) 463-5457
Il.. EGULATORY ·Al'IJAIRS
December 29, 2010
The Honorable Darrell E. Issa

Ranking Minority Member
Committee on Oversight and Government Reform
U.S. House of Representatives
2157 Rayburn House Office Building
Washington, DC 20515
Re: Regulations and their impact on the economy and jobs
The U.S. Chamber of Commerce, the world's largest business federation

representing the interests of more than three million businesses and organizations of
every size, sector, and region, is pleased to provide this response to your request for
information regarding the impact the federal regulatory process is having on the .
economy and jobs. The Chamber thanks you for your dedication to this highly
important issue, and looks forward to working with you as you explore this and other
matters as the next Chairman of the Oversight and Government Reform Committee.
I am the Chamber's Senior Vice President for Environment, Technology and

Regulatory Affairs. In this capacity, I represent the business community on issues
pertaining to environment, energy, telecommunications, e-commerce, emerging
technologies, and regulatory reform. Because the s~ope of your request covers the
entire regulatory sphere, I have asked my colleagues throughout the Chamber to
provide their input on regulations in health care, fInancial reform, education and other
sectors. You will receive their responses by separate letter. I urge you to contact
them directly with questions or comments on their particular areas of expertise.
I will confme my response to (1) environmental regulations that the Chamber is

currently very concerned with, and (2) suggestions as to how these problems may be
fIxed. I urge you to follow up with me or my staff if you have any questions or would
like additional information on these issues.
Decelnber 29,2010
Page 2 of10
I. Environmental Regulations and Their Impact
A. Overview
Compliance with environmental regulation has, at least in recent years, become

a substantial undertaking for businesses. Consider that in 1972, for every 1000 pages
of environmental regulations issued, there were 6000 pages of Internal Revenue Code
tax regulations issued. By 1988 tax regulations and environmental regulations issued
were about equal in number, around 10,000 pages of text. By 2007 tax regulations
issued had grown to 13,000 pages; however, in that same year environmental
regulations had grown to 30,000 pages! The figure below illustrates the relative
growth of the environmental regulatory state.
Environmental Law:
More Complicated than the Tax Code
(Pages In Code of Federal Regulations: Tax V8. Environmental)
.Alr • Water
30000 _Woste • Safety
n Remediation MOlher
25000 3000-,------------
200~----
'"00 .".-~"--
20000 150
100 - - - - -
15000
0\.1-..,..1"""
1972 1070 1989 1090 2008
10000
-11-1-
NSPS and NESHAPS Subparts
-----------:-1
0"·- -
'00
5000 400 - - - - - - -
300
200~-----
1972 1978 1988 1998 2007 l00It-----
o - - I-
• Tax • Environmental Fu,I. A,g,I,tlons P,g"
In recent years, EPA seems to have increased both the breadth and the burden
of its regulation of the business community. For whatever reason, it has largely spent
the past 24 months attempting to modify, re-issue, or re-interpret virtually every
controversial environmental regulatory decision of the past decade. Its actions can
generally be grouped into four categories:
December 29, 2010
Page 3 of 10
1. "Legislation by regulation," whereby EPA leapfrogs ahead of the

legislative process on a particular issue, Specific examples are
greenhouse gas regulation under the Clean Air Act, expansion of Clean
Water Act jurisdiction, toxic substances reform, and regulation of
Chesapeake Bay stormwater runoff.
2. "Reversal or reconsideration," whereby EPA seeks to reverse, reconsider

or reinterpret prior rules in a way that could create even more
disruption than the original rule. Examples are its pending
reconsideration of national ambient air quality standards (NAAQS) for
ozone, its reversal of the California Waiver, its retroactive veto of Arch
Coal's Clean Water Act permit for Spruce Mine No.1, and its recent
decision to revise the definition of "solid waste" under Subtide C of the
Resource Conservation and Recovery Act.
3. "Sue and setde," whereby EPA initiates a rulemalcing to setde a lawsuit

by an environmental group. Examples are EPA's proposal to regulate
greenhouse gases under the CWA, the recendy-announced New Source
Performance Standards (NSPS) for greenhouse gas emissions from
electric utilities and refineries, and regulation of nonroad mobile source
greenhouse gas emissions (due in 2011).
4. "Strict compliance," whereby EPA is obligated to issue a regulation iJ:?y

court order or Congressional directive), but issues an unnecessarily cosdy
regulation with seemingly little or nO consideration of its impact on the
regulated community. Examples are the Boiler MACT rule, the
Transport Rule, and Cooling Water Intal;:e Structures regulation.
The problem is not simply that EPA is issuing a lot of regulations. Rather, it is
that it has significandy increased the number of mq,ior rules (i.e., rules costing the
regulated community more than $100 million). These regulations typically ensnare
multiple industry sectors and have economy-wide costs usually measuring in billions
or even trillions of dollars. In the cases of greenhouse gases, Boiler MACT, Ozone
NAAQS and others, the economic impact is so widespread that multiple sectors of
the economy must face substantial compliance costs.
The Honorable Darrell R Issa
December 29, 2010
Page 4 of 10
When several of these massive regulations are piled on top of one another for
an industry, the cumulative impact can be ovelwhelming. The result: industries are
effectively regulated out of business. This recently happened for two power plants:
Portland Gas & Electric's Boardman coal-flted power plant in Oregon, and Exelon
Corporation's Oyster Creek Nuclear Generating Station in New Jersey. In both cases,
the utility was forced to choose between installing several hundred million dollars'
worth of pollution controls to comply with EPA regulations (regional haze at
Boardman, cooling water intake structures at Oyster Creek), or simply shut down
early. In both cases, the utility chose to shut down. This is a highly disturbing trend,
and one that will only continue in 2011 with the issuance of even more major rules.!
In fact, the North American Electric Reliability Corporation (NERC) recently found
that the suite of rules EPA plans to issue for electric utilities could force up to 19
percent cif our nation's fossil-fired electric generation to retire in the next ten years. 2
B. The Regulations
There are two parts to the regulatory overload problem: the regulations issued
by EPA over the past 24 months that are already on the books; and the new
regulations expected from EPA in the future. The following lists are divided in this
manner.
Regulations Proposed or Finalized Between 1/1/2009 and the Present
Regulation What Happened? Impact

The California Air Resources
As a result of negotiations for which a "vow of
Board now essentially controls
California silence" was issued,3 , California agrees not to
the fate of the automobile
Waiver enforce its motor vehicle GHG rule in exchange
industry. It almost immediately
(f'tnal) for EPA granting the waiver and issuing CAA
used this new leverage to push
regulations for new motor vehicles.
for 62 mpg standards bv 2025.
Ozone Less than two years after lowering the Ozone According to a Manufacturers'
(Pro/JOsed) . NAAQS from 80 parts per billio; (ppb) to 75 Alliance study, costs as high as
1 Perhaps none more so than the recently-announced greenhouse gas New Source Performance Standards (NSPS) for
new and existing coal- and oil-fired electric utilities and petroleum refiners. Depending on the cost and severity of
these new regulations, which EPA will propose in 20 II and require compliance with by 2015 or 2016, many more
plants conld be forced to substantially modify their operations, leading to eventual shntdowns.
2http://www.nerc.com/filesiEPA Scenario FinaLpdf.
3 See "Vow of silence key to White House-Calif. fuel economy talks," The New York Times, May 20,2009,
available at http://www.nytimes.com/gwire/2009/05/20/20greenwire-yow-of-silence-key-to-white-hollse-calif-fnel-
e-12208.html.
December 29, 2010
Page 5 of 10
ppb, EPA is performing a "do-over" of those $1.013 trillion annually between

vety same NAAQS, using the very same record, 2020 and 2030 (a 5.4% net
and lowering the NAAQS even further, to reduction in GDP) and a
somewhere in the 60-70 ppb tange. potential loss of 7.3 million
jobs by 2020 (4.3% of projected
'labor force).
CIBO/IHS Global Insight
estimate an economy-wide
GDP reduction of as much as
Sets hazardous air pollutant emission limits
$1.2 trillion; evety $1 billion
from industrial boilers and process heaters used
spent on compliance costs will
by a wide range of manufacturers at levels which
BoilerMACT put 16,000 jobs at risk. Fisher
are barely detectable and possibly unachievable.
(proposed) International estimates pillp
Requites installation of up to four different air
and paper industty costs will be
pollution control devices that will conflict with
$2.8 billion annually, $17 billion
other existing control requirements.
total, and would close 30 mills
and lose 17,000 jobs (72,000
with milltiplier effect).
EPA proposed the Transport Rille to reduce

North American Electric
S02 and NOx emissions from power plants,
Reliability Corporation (NERC)
Transport Rille under a new cap-and-trade program that allows
predicts the early retirement of
(proposed) only limited interstate trading. The Transport
3-7 GW of existing coal
Rule replaces the Clean Air Interstate Rille that
capacity.
was vacated by the DC Circuit.
To regulate the disposal of coal ash, a byproduct
NERC predicts early retirement
of the use of coal for electricity generation.
Coal Ash of 388 MW - 2 GW of existing
EPA has proposed to regillate coal ash as either
(proposeclj coal capacity (12 to 53 coal
solid waste under RCRA subtitle D or as a
units).
hazardous waste under RCRA subtitle C.
PSD permits alone will cost
EPA chose to regulate GHGs under the Clean $125,000 and 866 hours of
GHG
Air Act and t1~ggered a massive regulatory burden per facility. Title V
Regillation
cascade. Tbe problems start on January 2, 2011 imposes up to $250,000 carbon
under Clean
and will impact permitting. In addition, Clean "fee" 011 applicants. The true
Air Act
Water Act, NEPA, Endangered Species Act and economic and employment
(Finalj
SEC regulations (material risk disclosures). impacts are potentially
devastating.
GI-IG As part of a "sue and settle" with Center for CWA permit challenges are the
Regillation Biological Diversity (CBD), EPA took comment environmental groups' stated
under Clean on whether to use the Clean Water Act to goa1. 4 Also, a finding that the
4 The day EPA annonnced its settlement, the CBD attorney that filed the lawsuit, Miyoko Sakashita, was quoted as
stating that in implementing the Clean Water Act, EPA "could restrict C02 emissions from places they are giving
December 29, 2010
Page 6 of 10
Water Act regulate greenhouse gases, due to their impact oceans are impaired by GHGs
(proposed) on ocean acidification. under the CWA could open the
door to a rulemaking under
Section 112 of the Clean Air
Act, and treatment of GHGs as
Hazardous Air Pollutants.
Congress established a 2011-2012 timeline for
TSCA reform; however EPA has begun issuing
"Chemical Action Plans" for selected chemicals.
There is vety little transparency with respect to
EPA is pushing TSCA toward a
EPA's selection of chemicals for action plan
Chemicals tTIore "precautionary principle" '
development. EPA also recently announced
Regulation type approach, similar in
that it would deny Confidential Business
(Final) application to the European
Information claims for the identity gf chemicals
chemical law, REACH.
in health and safety studies filed under TSCA,
and that it will increase the frequency of
chemical reporting and broaden the scope of the
chemicals that must be reported.
Companies with 15 years of
permits issued by Texas (and
In an ongoing dispute, EPA has declared not objected to by EPA) are
various aspects of Texas' air permit program scrambling to avoid penalties as
Texas Air invalid. EPA revoked auth01'ily for several well as the misfortune of
Permits state-run air permit programs in late December having to get a new permit in
2010, an extremely rare occurrence in the Clean 2011 when GHGs are
Air Act's 40-year histoty. regulated. States in similar
situations to Texas are
concerned.
Mingo Logan Coal Co. obtained a final CWA If EPA is allowed to
discharge permit from EPA in 2008; EPA is retroactively revoke CWA
Spruce Mine
now considering a retroactive veto of the permits, companies will not risk
CWAPermit
permit. EPA's regional Administrator has undertaking such projects (
(Proposed)
recommended vetoing the permit; a final ' since permits can be reversed
decision from EPA is expected very soon. retroactively bv EPA ).
EPA is moving beyond the Supreme Court's Expansion of the jurisdiction of
jurisprudence redefining what is navigable (and the Clean Water Act could
dean Water
therefore under the Clean Water Act's purview), ultimately regulate small,
Act
and is developing new definitions. A major intrastate waters not intended
jurisdiction
guidance document has been rumored. In by Congress for regulation and
(Final)
addition, EPA recently declared the cement- expressly rejected by the U.S.
lined Los Angeles River-the concrete ditch of Supreme Court.
Clean Water Act permits to ... That would be what I'd like to see." See "EPA to Consider Using Water Law to
Fight Acidification," E&E ClimateWire, Mar. 12,2010, available at
http://www.eenews.net/c1imatewil.eI2010/03/12/archive/4 (subscription req'd).
December 29, 2010
Page 7 of 10
Grease and Terminator 2 car chase fame-a

"navigable" water subject to the reach of the
Clean Water Act.
EPA issued nue requiring housing contractors
to obtain certification in lead-safe work practices Lack of available training to
before renovating properties built before 1978. certify contractors under the
Lead Paint EPA removed homeowners' right to bypass new nue slowed construction
(Final) stricter preparation standards for properties projects nationwide, and led
where no children under 6 or pregnant women EPA to postpone the rule's
reside, even before examining whether existing effective date.
scientific research justified the change.
Future Regulations
Regulation What Happened? Impact

EPA plans to issue a rule requiring sources to
NERC predicts early retirement
MACTfor use MACT to control hazardous air pollutant
of 2-15 GW of existing coal
Power Plants emissions from power plants. Coal-fired
capacity.
plants will be the hardest hit.
.
EPA is considering technology-based

sl~ndards to regulate cooling water intake NERC predicts early retirement
Cooling Water structnres at CWA section 316(b) existing of 33-36 GW of existing
Intake Structnres facilities (i.e., power plants). According to capacity (coaVnuclear), approx.
EPA, the withdrawal of cooling water harms 347· units.
billions of aquatic organisms each year.
In a settlement with Sierra Club, EPA has
The 2008 rule streanliined
pledged to revise its definition of solid waste
regulation of hazardous
under RCRA. The definition was set in 2008
Definition of secondary materials and
in a rule intended to promote the legitimate
Solid Waste encouraged beneficial recycling.
recycling of hazardous secondary materials by
Revising the rule will cut down
malcing recycling and reuse cost-effective and
on these benefits.
safe, as well as to prevent "sham" recycling.
Once GHGs become "subject to regulation" Sleeping giant. Administrator
on January 2, 2011, EPA will respond to has wide discretion to issue
pending petitions for rulemalcing and begin GHG-driven performance
issuing New Source Performance Standards standards for wide range of
NSPS for GHGs (NSPS) for stationaiY source categories under new and existing stationary
CAA Section 111. On December 24, 2010, sources. EPA is considering
EPA announced it will propose GHG NSPS cap-and-trade, although at this
for new and existing coal- and oil-fired electric time such a move seems
utilities and oil refiners in 2011. unlikely.
EPA will propose NAAQS for partiCluate Administrator is not required to
PM2.5NAAQS
matter in early 2011, with final ree:wations due consider costs when setting a
December 29, 2010
Page 8 of 10
in 2012. NAAQS, and an overly strict

new NAAQS for PM could put
hU11dreds of counties into non-
attainment, jeopatdizing
economic growth.
II. How to Fix the Problem
There are a number of good ideas circulating in Congress as to how best to

address the "regulatory tsunami" businesses are facing. The Chamber suggests the
following additional measures.
• Enforce provisions of existing environmental laws requiring EPA to

consider jobs and economic impact. Section 312 of the Clean Air Act (42
U.S.c. § 7612) requires EPA to conduct a cost-benefit illlalysis for most
major air rules. Section 317 (42 U.S.c. § 7617) requires economic impact
assessments for most major air rules. And Section 321 (42 U.S.c. § 7621)
requires the Administrator to do a continuing study of the effect of its
regulations on employrllent or the threat of job loss. Identical provisions to
Section 321 exist in most other environmental statutes, such as the CWA,
TSCA, RCRA, and CERCLA. Yet EPA either flat-out ignores these
requirements (as it did with Section 321 and its GHG rules), or it does such
a poor job with the economic assessment and the underlying data that the
result is misleading, usually overstating benefits and understating costs. The
Chamber recommends requiring EPA to conduct these statutorily-required
analyses for all major regulations. Moreover, the Chamber recommends
preempting all EPA regulations issued in 2009 and 2010 that did not
adequately comply with Sections 312, 317 and 321.
• "Substantial Evidence" test for major rules. Currendy, when regulations are
challenged, agencies are required to show that their regulations were not
"arbitrary and capricious"-a test under the Administrative Procedure Act.
This is a very low bar and considered very deferential to the agencies.
However, under the statute creating OSHA, the agency is required to
support its regulations with "substantial evidence." While still deferential,
this is a higher bar to nieet and requires courts to also look at countervailing
evidence as part of the record as a whole. Requiring other agencies to meet
this test, perhaps for only a subset of regulations deemed "major" by some
December 29, 2010
Page 9 of10
specific definition such as $100 million impact on the economy, would force
agencies to ensure they had better data and arguments before proceeding.
It would provide needed balance and accountability to the rulemalcing
process requiring regulating agencies to support new regulations with a
"substantial evidence" standard. The "substantial evidence" determination
can be made through an on-the-record hearing using the procedures set
forth ll1. Sections 556 and 557 of the Administrative Procedures Act. The
Chamber asked for, and was denied, an on-the-record hearing on the issue
of EPA's Endangerment finding.
• Assure judicial review under the Data Quality Act. The Data Quality Act
(DQA) ensures the "quality, objectivity, utility, and integrity" of information
disseminated to the public. It requires agencies to comply with OMB .
information quality standards and to provide their own information quality
guidelines and procedures to ensure affected persons may seek and obtain
correction of disseminated information that violates the OMB standards.
One value of the DQA is that it recognizes the importance of non-
regulatory agency actions such as guidance documents. Because the DQA
does not explicidy allow judicial review of claims by interested parties
challenging whether an agency has met its burden under this law, agencies
claim there is no right to judicial review and assert that they may violate it
with effective impunity. Yet the underlying data EPA uses is often fraught
with error and uncertainty. The Chamber fJled a DQA petition with respect
to EPA's Endangerment finding, but has virtually no legal recourse now
that EPA has not acted on it.
• Require a 1Ulemaking to implement Clean Air Act Section 179B (42 U.S.c. §
7509a) for foreign air emissions. Section 179B allows EPA to waive a host
of typical CAA non-attainment penalties for areas that can show that they
would be in attainment with a NAAQS (for Ozone, PM, etc.) but for the
effect of emissions originating outside the United States. With China and
other Asian economies industrializing at rapid rates, a great deal of their
emissions are wafting across the Pacific Ocean and affecting air quality in
the Western United States. Many counties in your home state of California
will be in Ozone NAAQS non-attainment under the new standard, despite
vety little in the way of sources of ground-level ozone. The Chamber
submitted a petition for rulemalcing to EPA in 2007 on this issue, which it
denied. It continues to refuse to implement Section 179B, and gives foreign
The-Honorable Darrell E. Issa
December 29, 2010
Page 10 of 10
air emissions no weight whatsoever when determining what "background"

levels of ozone are in the NAAQS it is reconsidering.
• Stop NGO abuse of the regulat01:Y process to advance political agendas and
thwart permits for new projects. The environmental regulatory process is
irreparably broken. "Sue and settle" is not an appropriate rulemalcing
process, and is even more egregious when considering that the plaintiffs in
those cases typically have their attorneys fees paid from the Judgment Fund,
a permanent, unlimited appropriation from the Congress. Moreover,
environmental groups and other "Not In My Back Yard" activists have
mastered the use of the regulatory process to stop new construction. As
recently as Section 1609 of the American Recovery and Reinvestment Act
of 2009, the Congress stated that the purpose of NEPA is to "provide an
orderly process ... that prevents litigation and delay that would otherwise
be inevitable." As the Chamber's enclosed comments on NEPA
demonstrate, environmental groups and NIMBY activists have
accomplished the exact opposite result. The Chamber's ProjBtt No Project
initiative (htt;p:/Iwww.projectnoproject.com) chronicles roughly 350 energy
projects that have been stalled, stopped or otherwise thwarted by challenges
to permits, zoning changes, political opposition and similar efforts. The lost
investment and job creation from keeping those projects on the sidelines is
massive. The Chamber intends to release an economic study in early 2011
assessing the true value of those stopped projects.
Thank you once again for your request for information on the "regulatory
tsunami" and its impact on jobs and the economy. The Chamber looks forward to
your leadership of the Oversight and Government Reform Committee, and stands
ready to work with you on these issues.
Sincerely,
William L. Kovacs
Enclosure
CHAMBER OF COMMERCE
OF THE
UNITED STATES OF AMERICA
RANDEL K. JOHNSON 161SH STREET, N.W.

SENIOR VI.CE. PRESIDENT WASHINGTON, D.C. 20062
LABOR, IMMIGRATION & EMPLOYEE 202/463-5448 . 202/463-3194 FAX
BENEFITS
January 13, 2010

Cmnmittee on Oversight and Government Reform
U.S. HOuse of Representatives
2157 Rayburn HOuse Office Building
Washington, DC20515
Re: Health Reform Regulations and their impact on the economy and jobs
The U.S. Chamber of Commerce, the world's largest business federation representing the
interests ofmore than three million businesJeJ and organizations of every size, sedor, and region, is pleased
to provide this response to your request for information regarding the impact that the
federal regulatory process is having on the economy and jobs. Thank you for your
dedication to this highly important issue; we look forward to working with you as you
explore this and other matters as the next Chairman of the Oversight and Government
Reform Committee.
Following the passage of Health Reform, six interim final rules were published in a little over
two months. This may be perhaps the most troublesome, extensive and broad reaching
example of the subversion of appropriate regulatory procedure. Specifically, this regulatory
implementation of health reform provides a text-book example of why interim final rules
should not be issued for such significant and substantial regulatory provisions. Of the 15
employer related regulatory publications issued, virtually every publication has been followed
by some form of correction - either in the form of sub-regulatory guidance revising prior
regulatory language or the unusual issuance of an amended interim final regulation.
For two reasons, the argument that statutorily created effective dates mandate such an
unusual and expedited regulatory process rings hollow: .
1. These effective dates have been virtually impossible for employers to meet and
regulatory Departments have responded by delaying enforcement, while still issuing
regulations without the opportunity for public input prior to the effective dates.
Although the corrections and the delays are betterthan the inappropriate rules and
unattainable deadlines, they create further uncertainty and confusion as employers
struggle to remain informed and compliant as to current legal responsibilities and
regulatory requirements.
2. There are many refonu requirements until the guidance is issued for which the
Departments have deemed compliance voluntary (auto-enrollment, W-2 reporting to
name a few). It seems the Departments are arbitrarily subverting the Administrative
Procedure Act in order to meet statutory deadlines in some instances while simply
declaring the delay of compliance and enforcement in others.
In an effort to address this questionable process, the US Chamber of CDmmerce worked

with Senator CDmyn's office during the 111 th CDngress to draft the Public Accountability in
Health Care Implementation Act (S. 3924). This legislation was introduced on the Senate
floor on September 29,2010, after a CDngressional Research Service report found that 92%
(11 out of 12) of PPACA's final rules issued in the first six months of implementation
circumvented public comment. (See attached analysis.) This bill promoted transparency in
the PPACA rulemaking process by requiring federal agencies to finalize IFRs- based on
public comment- within 60 days.
We look forward to continuing to promote transparency and to insure appropriate public

comment opportunities while the administrative regulatory agencies implement PPACA, a
law which left tremendous rulemaking power to the Administration and affects al1300 .
. million Americans and one-sixth of the American economy.
Should you wish to follow upon these issues, or other issues, please feel free to give me a
call.
Sincerely,
Randel K. Johnson
Senior Vice President
Labor, Immigration & Employee Benefits
U.S. Chamber ofCDmmerce
Commodlty Markets Council
1300 LSt., N.W. Suite 1020
CMC
COMMODITY MARKETS COUNCIL
Tel 202-842-0400
Fax 202-789-7223
www.cmcmarkets.org
January 14,2011
The Honorable Darrelllssa

Chairman, U.S. House of Representatives Committee on Oversight and Government Reform
Washington, DC ~0515-6143
Dear Chairnlan Issa,
The Commodity Markets Council (CMC) thanks you for the opportunity to identify proposed or existing
regulations that are negatively impacting jobs in our industry, and on reforming the identified regulations and the
rulemaking process. With the Commodity Futures Trading Commission (CFTC or Commission) still considering,
drafting, or reviewing the majority of rules necessary to implement the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank 01' the Act), it is difficult to quantify the impact on jobs in the commodity
derivatives industry. Therefore, the list we provide below is not exhaustive, and we look forward to a continuing
dialogue as you endeavor to reform regulations and rulemaking in the 112'h Congress.
CMC is a trade association bringing together exchanges with their industry counterparts. The activities of our
members represent the complete spectrum of commercial users of all futures markets including agriculture.
Specifically, our industry member finns are regular users of the Chicago Board of Trade, Chicago Mercantile
Exchange, ICE Futures US, Kansas City Board of Trade, Mi1llleapolis Grain Exchange, and the New York
Mercantile Exchange. CMC is uniquely positioned to provide the consensus views of commercial end-users of
derivatives exchanges and the exchange markets. Our comments below represent the collective view of CMC
members.
The CMC and its members are long-standing proponents of integrity and transparency in U.S. futures markets. The
competitive strength and viability of our markets and their ability to serve the price discovery and risk management
needs of their users, is directly dependent on these principles. Without public confidence in adherence to these
values, there can be no effective and efficient marketplace. Within this context, CMC is concerned that the
adoption of unnecessary rules 01' the adoption of rules without sufficient deliberation will result in policies that
hamper market efficiency, tie up capital, and constrain job growth. Specifically, CMC has three primary concerns
with the implementation of the Act:
1) The rulemaking tinleframe does not allow for thoughtful, robust industry comment and dialogue;
2) The isolated and atomistic approach adopted by the Commission ignores the inherent relationships that
should exist between the rules; and
3) While the Act provides a detailed framework for implementation and the industry knew the Act required
substantial rulemaking, the CFTC is using this opportunity to inlplement prescriptive regulations outside
of that required by Dodd-Frank to already well-functioning commodity markets.
1. Rulemaking Timeframe Restricts Thoughtful, Robust Industry Comment & Dialogue

The rulemaking pace adopted by tl,e Commission aims to meet the July 2011 implementation date
set by the Dodd-Frank Act; however, the timeframe is so tight, the quantity of rules so large and
the subject matter so complex, the industry is simply overwhelmed. For example, at a single
public meeting on December I, 2010, the Commission approved over 500 pages of rulemaking.
With each rulemaldng building on preceding rules and impacting subsequent rules, we believe it is
imperative that industry and the Commission have adequate time· and data to make prudent
recommendations and comments. The current timeline provided in the Act does not allow for this.
Commodity Markets Council
Page 2 of5
Compounding the problem is the CFTC's refusal to ask for additional time or to prioritize
systemically important rulemakings. With this kind of volume and speed, the industry and the
regulatory agency are overwhelmed and simply not capable of providing tl,e thoughtful COlmnents
the CFTC needs to implement sound public policy.
a. Disruptive Trading Practices Rules Are Overly Broad & Could Discourage Market
Participation
The new rules outlined in the Act are intended to protect fair and equitable trading;
howevet, CMC is concerned the statutory language is overly broad and if not
implemented with precision could discourage market participation. This fear was voiced
by CMC and other industry groups at the CFTC roundtable on this topic and we urge the
Commission to strongly weigh it when drafting rules.
I. The statutory language is vague and all implementing rules should provide precision
and clarity in order to avoid deterring or restricting legitimate trading activity.
2. Definitions of key tenns need to be precisely crafted and the scope of application
narrow.
3. The intent standard applied to "disruptive trade practices" should be extreme

recklessness.
CMC urged the Commission, following extensive consultation with a broad spectrum of
market participants, to promulgate specific "rules of the road" within each of the
statutory categories. Anytlling less poses a threat to innocent traders and risks substantial
hann to the markets. While the legislative goals. are laudable, the means to achieve them
must be fair and clear for all market participants. We believe doing so will serve the
interests of the trade, lawmakers, regulators and the general public.
b. Proposed Rulemaking on Prohibition of Market Manipulation

Section 753(c)(l) of the Dodd-Frank Act seeks to proscribe fraud-based manipulative
conduct. On its face, the provision bOlTOWS heavily from securities' statements and
regulation. CMC advised the CFTC that clear differences between the securities and
futures markets render this approach dubious at best. The analogue of an issuer with
.fiduciary obligations is simply not present in the futures world. Insider trading rules
have only a limited application in futures markets, and are usually restricted to exchange
or government persoIl1lel and infonnation. Duties of disclosure flowing from fiduciary
relationships have no parallel in futures markets. The effort to copy the statute and rules
of one market and apply them to another that exists for different purposes and that
functions in a different manner is inappropriate. CMC believes it wi11lead to confusion
and disruption. .
2. The Commission Does Not Have A Team Responsible For a Holistic Reading Of The Rnles
The Commission set up 30 teams to draft the rules required under the Dodd-Frank bill; however,
there appears to be no tealll responsible for a holistic reading of the rules or for facilitating the
sharing of salient infonnation between teams. We believe this silo approach risks implementing
policies that could have a detrimental impacts on industry; .
a. Swap Dealer Definition Is So Broad & The De Minimis Rules So Low It Drains Company
Resources
An entity classified as a swap dealer under the new regulations must comply with
heightened reporting, compliance, capital and margin requirements. The CFTC's refusal
to exempt entities which are classified as a swap dealer in one asset class from being
classified as a swap dealer in all asset classes means that a fmn which was acting in full
compliance with the law prior to the Dodd-Frank bill must now incur the cost of reviewing
its business model and adopting all the changes (legal and otherwise) to return to
Page 3 of5
compliance. This will drain capital that could have gone to job growth and business
development.
b. Swap Dealer Definition Fails To Account For Safeguards Already In Place

CMC supports the Commission in its mission to curb systemically risky institutions and
instruments; however, we asked the CFTC to use caution in drafting definitions so broad
as to impede the creation and flow of capital and liquidity in the financial markets.
For example, cleared over-the-counter (OTC) swaps are already subject to exchange rules
of credit assessment and margining. Moreover, clearing members of the exchanges are
subject to a thorough credit analysis and required to provide regular financial reporting.
These clearing members in tum require a margin and credit analysis of their customers.
Entities that exclusively trade exchange-cleared swaps mark their positions to market and
are assessed a daily margin. The clearing house also verifies the provision and
maintenance of adequate liquidity buffers to cover extreme markets swings.
CMC recommended to the Commission that entities that only trade exchange-cleared
swaps should be exempt from the Swap Dealer definition. This would ensure that
commercial end users continue to utilize deep OTC markets with adequate liquidity to
effectively hedge their risks. We are concerned increased capital and margining
requirements will correspondingly increase the cost of compliance and opportunity cost of
capital for entities which only trade exchange-cleared OTC swaps. These costs could
result in finns ceasing or reducing their use of such instruments which would decrease the
liquidity of currently robust markets.
3. The CFTC Is Using This Opportnnity To Implement Overly Prescriptive Regulations & To Go
Beyond The Act's Requirements
We are concerned and disappointed the CFTC is using the Dodd-Frank legislation to not only
implement a regulatory regime for unregulated OTC trading, but as an opportunity to propose
unnecessary and extremely prescriptive regulations on already regulated derivative markets.
These markets were not the cause of the 2008 financial crisis. In fact, these regulated markets
operated exemplary under extreme market volatility and pressures. TIlis abmpt shift away from
principles-based to prescriptive regulation will not serve the industry in competing globally for
market share and liquidity and could impact jobs and growth going forward.
a. The Commission Has Not Provided Empirical Evidence Necessitating The Imposition Of
Speculative Position Limits
CMC believes Congress authorized' the Commission to set position limits only in the
limited circumstances where excessive speculation has resulted in unwarranted price
fluctuations. A review of the empirical evidence from multiple studies' shows supply and
demand fundamentals and other macroeconomic factors, not speculation, proved to be the
. most significant factors driving the markets. .
Against this background, CMC requested the Commission conduct a thorough empirical
analysis of pricing and market data before it imposes any position limits on futures,
1 Section 4(a) of the Commodities Exchange Act, flS amended by the Dodd-Frank Act, makes clear the Commission's authority to
set position limits is designed not to restrict speculation, but to prevent "unwarranted and unreasonable fluctuations resulting from
excessive speculation...". Moreover, the statute mandates that before position limits are imposed, the Commission must find (1) that
there has been "excessive speculation" and (2) that the excessive speculation has resulted in "unwarranted and unreasonable price
fluctuations."
Z See, e.g., CFTC Interagency Task Force on Commodity Markets, Jnterim Report on Crude Oil at 3-4 (July 22, 2008); Michael
Haigh et aI., Market Growth, Trader Participation and Pricing in Energy Futures Markets (Feb. 7, 2007) and GAO-09-285R, Issues
Involving the Use of the Futures Markets to Invest in Commodity Indexes at 5 (Jan. 30, 2009).
PageA of5
options or swaps contracts in exempt or agricultural commodities. CMC believes this is a

subject best left to futures exchanges to address through existing market surveillance
programs on a contract by contract basis. Exchanges have developed an expertise in
maintaining orderly markets, including setting appropriate reportable levels, position
limits and accountability levels relative to energy, metal and agricultural markets. This
system provides the flexibility necessmy to prevent excessive speculation while
preserving transparent and liquid markets.
CMC believes this flexible regulatory approach is a more effective way to address
potentially manipulative and disruptive positions. Indeed, the failure of any empirical
studies to identify unwarranted price fluctuations due to excessive speculation suggests
these programs have been successful itl promoting market stability and avoiding
unwarranted disruptions. Imposing artificial position limits in this context could harm
market liquidity.
If the Commission makes the necessary findings supported by demonstrable evidentiary

data, CMC urged the Commission to proceed cautiously mld judiciously in setting limits
for given futures, options or swaps. The new Dodd-Frank amendments contain various
and somewhat confusing timing requirements for the exercise of the Commission's
authority in this area, but they all vest the Commission with discretion, premised upon the
necessary findings, to establish limits "as appropriate." Thus, the Act contains an element
of flexibility so the Commission need not act nntil it deems position limits in a given area
are "appropriate."
It is also important to note that CMC is concerned with reports that the Commission may
set concentration limits on lllLmarket participants. Such limits, which would apply to
bona fide hedgers, would cap the position of market participants at a certain percentage of
.the open interest of the spot month and all months combined. If such a proposal
materializes it would apply to bona fide hedgers ill direct contradiction to the law.
b. Sophisticated Market 'participants Are Required To Provide Detailed Disclosures,

Increasing The Cost Of Trading
The Commission's proposed rules require Swap Dealers and Major Swap Participants
(MSP) to verify that a counterparty is an Eligible Contract Participant (ECP), to provide
detailed disclosures of the risks ill the trades and to provide daily mark-to-market
quotations. While this may not be an overly onerous requirement for the Swap Dealer or
MSP, the costs incurred by the counterparties in meeting these requirements will increase
the cost of trading.
c. FCM Investment Restrictions May Lead To Increased Customer Costs

For Futures Commission Merchants (FCMs), the CFTC recently issued proposed rules
limiting the ldnd of investulents that can be used in connection with customer fnnds. By
severely restricting customer fund inveslulent to very low risk instruments, FCMs may be
forced to find return elsewhere, including increasing customer costs.
CMC is a long-standing proponent of integrity and transparency in U,S, futures markets. We support the effort both
by lawmakers and the CFTC to curb systemically risky institutions mld instruments. The businesses of all our
member fiffils depend upon the efficient and competitive functioning of the risk management products traded on U.S.
futures exchanges, The Commission's diligent oversight efforts have fostered Exchange innovation and technology
adoption. We have seen the commodity markets grow and prosper. They have become deeper and more liquid,
nmTowing bid/ask spreads and improving hedging effectiveness and price discovery. Meanwhile, liquidity,
technology, clearing quality, price and customer service has driven market selection. All of these developments serve
the interests of the trade as well as the public.
Page 5 of5
One of the economic benefits of efficient commodity markets is that they free up capital allowing businesses to invest
and grow. Compelling businesses to comply with unnecessary or hastily drafted rules will divert resources away
from job growth and business development. In a global marketplace, CMC has seen businesses seek out the liquidity
of US commodity markets. To ensure that this continues, we believe it is imperative the rulemaking process of the
Dodd-Frank Act take into account the unique nature and outstanding track record of US exchanges.
CMC thanks you for Il,e opportunity to share our thoughts, and we look forward to meeting with you, your colleagues
on Il,e committee and your staff in the near future. If you have any questions or would like todiscuss further, please
do not hesitate to contact me via email at christine.cochran@colllmoditymkts.org or via phone at (202) 842-0400 -
ext. 101.
Regards,
Christine M. Cochran
President
Commodity Markets COffilcil
Attachments:
For your records, we are including CMC's recent public record filings wiili the CFTC
Ag swaps coalition letter
CMC letter on agricultural swaps
CMC letter on Carbon Study
CMC letter on ag commodity definition
CMC letter on Title VII definitions
CMC letter on disruptive trade practice
CMC letter on market manipulation
CMC pre-comlllent letter on speculative position limits
October 28,2010
David A. Stawick
Secretary
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, NW
RE: Advanced Notice ofProposed Rulemaking and Request For Public Comment on
Agricultural Swaps (Federal Register Release 75 FR 59666)
Dear Mr. Stawick,
In response to the Commodity Futures Trading Commission's (CFTC or Commission) presentation

before the Agriculture Advisory Committee in Augnst on agricultural swaps and in response to the
advanced notice of proposed rulemaking, we would like submit the following comments for your
consideration. .
We, the undersigned organizations, represent end-users of all U.s. futures markets. TI,e members of our
respective organizations trade regnlarly on the Chicago Board of Trade, Chicago Mercantile Exchange,
. ICE Futures US, Kansas City Board of Trade, Minneapolis Grain Exchange, and New York Mercantile
Exchange.
Ag swaps are used, to varying degrees, by our members because they provide a targeted, customized,
cost-effective, and efficient risk management strategy. They offer contract characteristics outside of what
is generally available on regulated futures markets. These products are not used to replace regnlated
exchange-traded contracts. Rather, they complement exchange products and enhance the overall offering
of tools available to market users to satisfy their specific risk management needs. In a world with
increasing inherent volatility, the need for risk management instruments has never been greater.
We urge the Commission to treat swaps for all commodities harmoniously. We believe the
comprehensive regnlation of swaps should not be based on distinctions among commodity types. The
generally applicable protections under the Dodd-Frank Bill- such as reporting, mandatory clearing,
mandatory trading of standardized swaps, minimum capital requirements, and the CFTC's authority to
impose position limits, determine which swaps are subject to clearing and trading and to exercise
emergency powers - will protect ag swaps from fraud and manipulation.
We look forward to working with the Commission, the connnodities industry (including both hedgers and
speculators), and the U.S. futures exchanges to find ways to accOlmnodate the demand for better risk
instruments - including customized products like swaps.
Sincerely,
American Farm Bureau Federation

American Soybean Association
National Association of Wheat Growers
National Cattlemen's Beef Association
National Corn Growers Association
130.0 L St" N,W, Suite 1020
CMC
Tel 202-842-0400
Fax 202-789-7223
www,cmcmarkets.org
COMMODITY MARKETS COUNCil
December 17, 2010
David Stawick
Secretary
1155 21st Street, NW
RE: 75 FR 72816, Public Input for the Study Regarding the Oversight ofExisting and Prospective
Carbon Markets
Dear Mr, Stawick:
The Commodity Markets Conncil ("CMC") appreciates the opportunity to submit the following comments for
consideration by the Commodity Futures Trading Commission ("CFTC" or "Connnission") regarding the
congressionally mandated study of the oversight of existing and prospective carbon markets as set out in the
November 23,2010 Federal Regisier.
CMC is a trade association bringing together exchanges and their industry counterparts, The activities of our
members represent the complete spectrum of commercial users of all futures markets including energy and
agriculture, Specifically, our industry member finns are regular users of the Chicago Board of Trade, Chicago
Mercantile Exchange, ICE Futures US, Kansas City Board of Trade, Minneapolis Grain Exchange and the New
York Mercantile Exchange, CMC is nniquely positioned to provide the consensus views of commercial and end
users ofderivatives, Our comments represent the collective view ofCMC members,
The businesses of all our member firms depend upon the efficient and competitive functioning of the risk
management products traded on U,S, futures exchanges, Through the Commission's diligent oversight efforts
fostering Exchange innovation and technology adoption, we have seen the commodity markets grow and prosper.
Carbon markets offer similar opportnnities for growth and innovation, Moving forward, we see trading
greenhouse gas allowances as part of a market participant's overall energy portfolio - with the products trading
much the same way energy products trade today, As such, we believe the CFTC is well-positioned to draw on its
experience to regulate the carbon market.
The CMC's select responses to the specific questions asked in the Federal Register are as follows:
2, What are the basic economic features that might be incorporated in a carbon market that would have an effect
on·market oversight provisions-e,g" tl,e basic characteristics of allowances, frequency of allocations and
compliance obligations, banking of allowances, borrowing of allowances, cost containment mechanisms, etc,?
RESPONSE: There are several critical aspects to well-funetioning carbon markets. Any strueture must
have well established clear rules for the approval and issuance of offset credits eligible in the United
States. There must also be a timely process for approval to accompany these rules. The U.S. allowanee
and offset eredit market should ideally be fungible with the existing global market and therefore the U.S.
registry must be linked to other international registries issuing and housing eredits. The unique nature of
global carbon markets may require novel approaches to addressing liquidity considerations. It may be
appropriate to consider the establishment of a central carbon bank holding a dermed reserve of permits
for use in strictly defined circumstances.
Page 2 of 2
3. Do the regulatory objectives differ with respect to the oversight of spot market trading of carbon allowances
compated to the oversight of derivatives market trading in these instruments? If so, explain further.
RESPONSE: No.
4. Are additional statutory provisions necessary to achieve the desired regulatory objectives for carbon markets
beyond those provided in the Commodity Exchange Act, as amended by the Dodd-Frank Act, or other federal
acts that may be applicable to the trading of carbon allowances?
RESPONSE: Only to the extent the previously described issues in Question 2 would require statutory
changes.
5. What regulatory methods or tools would be appropriate to achieve the desired regulatory objectives?
RESPONSE: The current tools embedded in the Commodity Exchange Act should be sufficient.
6. What types of data or information should be required of market participants in order to allow adequate
oversight of a carbon market? Should reporting requirements differ for separate types of market participants?
RESPONSE: Compliance participants in the market should be subject to public reporting of measured
emissions each year, allocation of free permits from the issuing body and expeeted emission reduction
targets. Financial investors should be subject to normal regulatory disclosures.
7. To what extent is it desirable or not desirable to have a unified regulatory oversight program that would
oversee activity in both the secondary carbon market and in the derivatives markets?
RESPONSE: It is extremely desirable to have a unified body in order to avoid conflicting or unclear
regulatory overlap.
8. To what extent, if any, and how should a U.S. regulatory program' interact with the regulatory programs of
carbon markets in foreign jurisdictions?
RESPONSE: Global carbon markets tend to be guided by the decisions of governments about the
quantity and quality of eligible offsets. In the short term, it seems the United States or market sponsors
need to make similar decisions, as well as what off-shore offsets will qualify. AIl this speaks to the
previously mentioned need to link U.S. registries with other international registries, creating a fungible
commodity. Longer term, the U.S. market should be part of a global market of shared allowances and
regulatory structures should engage internationally, as necessary and appropriate.
The CMC thanks the Commission for the opportunity to present its views on this most important subject. If you
have any questions or would like to discuss further, please do not hesitate to contact me via email at
christinc.cochran@commoditymkts.org or via phone at (202) 842-0400 - ext. 101. Thank you in anticipation of
your attention to these comments.
President
1300 L St,N.W. Suite 1020
CMC
Tel 202·842·0400
Fax 202·789·7223
www,cmcmarkets.org
November 24, 2010
Mr. David A. Stawick

Secretary
U.S. COllunodity Futures Trading COlmnission
115521" Street, NW
Washington, DC
Re: Agricultural Swaps ANPRM; Agricultural Commodity Definition (RIN 3038 - ADZ!)
Dear Mr. Stawick,
The Commodity Markets Council ("CMC") appreciates the opportunity to comment during the process of rulemaking by
the Commodity Futures Trading Commission ("CFTC" or "Commission") in response to the Dodd-Frank Wall Street
Reform and Consumer Protection Act ("Act").
CMC is a trade association bringing together exchanges with their industry counterparts. The activities of our members
represent the complete spectrwn of commercial users of all futures markets including agriculture. Specifically, our
industrY mem.ber finns are regnlar users of the Chicago Board of Trade, Chicago Mercantile Exchange, ICE Futures US,
Kansas City Board of Trade, Minneapolis Grain Exchange, and the New York Mercantile Exchange. CMC is uniquely
positioned to provide the consensus views of commercial end-users of derivatives exchanges and the exchange markets.
Our comments below represent the collective view ofCMC members.
CMC is supportive of the Commission's efforts to define an "agricultural commodity", and of the four categories of
agricultural commodities spelled out by the CFTC in its proposed rule issued on October 26, 2010. We agree with the
CFTC's classification of agricultural commodities based on their enumeration and the primary purpose for which they
are used. We also support the inclusion in their own separate category of other commodities that are widely accepted as
being agricultural in nature, but that do not fit neatly into any other category based on the parameters described above.
Finally, we support the delineation of commodity-based contracts in the final category as listed by the Commission,
pursuant to whether such contracts are based principally 01' wholly on a single underlying agricultural commodity.
However, because defining agricultural commodities is a new endeavor for the CFTC, the CMC believes it would be
prudent to gnard against the consequences that may result from the inclusion or exclusion of specific commodities in /
from the definition. The futures industrY is innovative and rapidly evolving, and as such, we believe that neither
regulators nor market participants can entirely and accurately foresee the nature of new products and the future impact of
regulatory decisions made at this time without anticipation of such developments.
We therefore urge the Commission to provide for an appeals process for new instruments. To elaborate, we request that
a consistent process and time period be instated for appealing a CFTC decision to include or exclude a particular
cOimnodity from the list of agricultural commodities. We acknowledge that the CFTC in its ANPRM has made a
provision for public hearings for Category 3 agricultural commodities, but we request that a process for public
comments and appeals be made broadly available in the context of including or excluding an agricultural commodity
under any category of the definition.
If you have any questions or would like to discuss further, please do not hesitate to contact me via email at
christine.cochran@commoditymkts.org or via phone at (202) 842-0400 - ext. 101. Thank you in anticipation of your
attention to these comments.
Regards,
CHRISTINE M. COCHRAN
President
1300 L St., N.W. SUite 1020
Was_h.ington t _ [)C. ;W005 _
CMC
COMMODITY MARKETS COUNCIL
Tel 202-842-0400
Fax 202-789-7223
www.cmcmarkets.org
October 28, 2010
Mr. David A. Stawick

Secretary
U. S. Commodity Futures Trading Commission
115521" Street, NW
Washington, DC
Re: Advanced Notice of Proposed Rulemaking and Request For Public Comment on
Agricultural Swaps (Federal RegisterRelease 75 FR 59666)
Dear Mr. Stawick,
The Commodity Markets Council ("CMC") appreciates the opportunity to comment during the process of
rulema1cing by the Commodity Futures Trading Commission ("CFTC" or "Commission") in response to
the Dodd-Frank Wall Street Refonn and Consumer Protection Act ("Act").
CMC is a trade association bringing together exchanges with their industry counterparts. The activities of
our members represent the complete spectrum of commercial users of all futures markets including
agriculture. Specifically, our industry member firms are regular users of the Chicago Board of Trade,
Chicago Mercantile Exchange, ICE Futures US, Kansas City Board of Trade, Minneapolis Grain
Exchange, and the New York Mercantile Exchange. CMC is uniquely positioned to provide the consensus
views of commercial end-users of derivatives exchanges and the exchange markets. Our comments below
represent the collective view of CMC members.
Agricultural swaps are used, to varying degrees, by our members because they provide a targeted,
customized, cost-effective and efficient risk management strategy. They offer contract characteristics
outside of what is generally available on regulated futures markets. These products are not used to replace
regulated exchange-traded contnicts. Rather, they complement exchange products and enhance the overall
offering of tools available to market users to satisfy their specific risk management needs. In a world with
increasing inherent volatility, the need for risk management instruments has never been greater.
Harmonious Treatment of Agricultural Swaps Is in the Public Interest
As Senators Dodd and Lincoln stated in their June 30, 2010 letter to Representatives Frank and Peterson,
"derivatives are an important tool businesses use to manage costs and market volatility," regardless of
whether they are used by an airline hedging its fuel costs or a global manufacturing company hedging
interest rate risk. Accordingly, we urge the Commission to treat swaps for all commodities harmoniously.
We believe the comprehensive regulation of swaps should not be based on distinctions among commodity
types. TI,e generally applicable protections under the Act - such as reporting, mandatory clearing,
mandatory trading of standardized swaps, minimum capital requirements, and the CFTC's authority to
impose position limits, determine which swaps are subject to clearing and trading, and to exercise
emergency powers - will protect agricultural swaps from fraud and manipulation.
October 28, 2010
Page 2 of 7
While we encourage the Commission to set the same requirements for eligible contract participants
("ECP") across all asset classes, we believe there should be no ECP requirement for agricultural swaps
traded on a designated contl'act market ("OCM").
Historically, the Commission and lawmakers subjected agricultural commodities to a greater degree of
regulation and oversight as part of a policy to protect producers. We believe the protection already
embedded in the Act will provide the necessary safeguards for producers and other market participants.
For example, if neither party to a swap agreement was an end-user, the Act requires the transaction to be
traded on a OCM or swaps execution facility. Such transactions must be cleared. If an entity is trading as
an end-user, the Act already requires the entity to be an ECP. In either situation, we believe these
safeguards are in the public interest.
Moreover, these protections embedded in the Act could be averted if the Commission were to maintain
the current regulatory structure for agricultural swaps under Part 35. For example, an agricultural swap
entered into under the existing Part 35 regulations would be excluded from the clearing and exchange-
trading requirements of the Act. This loophole would also allow such participants to evade the swap
dealer and major swap participant regulations.
Cash Forward Contracts WIth Embedded Options and Certain Cash Transaction Book-onts
Should Not be Treated as "Swaps"
While recognizing these trades are different, CMC believes embedded options in forward contracts and,
separately, book-outs from certain cash transactions should not be treated as swaps. Each of these markets
has been historically recognized by the Conunission as cash and we merely seek confinnation of this from
the CFTC as the proposed rules affecting agricultural transactions move forward. Regardless of whether
these trades are made with producers or are between commercial entities, so long as the parties to the
transaction have the intention of physical delivery, they should continue to be treated as cash and not
become subject to regulation as a swap. CMC believes these transactions are significant to-the agricultural
cash market; any change in the characterization would reduce cash contract opportunities for producers
and disrupt export markets in bulk agricultural commodities. -
From a producer perspective, treating embedded options as swaps would deny them access to cash
contracts that allow them inlproved pricing opportl1llities. These contracts require delivery, but hold open
final pricing until the producer sets his basis under the terms of the contract. The CMC requests the
Commission to reaffirm its position that these transactions fit within the exclusion for cash forward
transactions l1llder the Act.
Similarly, if book-outs are treated as swaps, CMC believes it could hinder the net settlement of physical
transactions and place the Commission in the position of regulating what is, in fact, a vibrant piece of the
cash market between commercial participants. Senators Dodd and Lincoln in their letter to the CFTC
expressly excluded from the definition of swaps the situation where "commercial parties agree to book-
ont their physical delivery obligations tmder a forward contract." Accordingly, CMC respectfully urges
the Commission to grant an exclusion from rules regulating agricultural swaps for book-outs, so long as
such transactions are intended to be physically settled.
Because of the importance of this distinction to the agricultural industry, CMC requests the CFTC
expressly state in itsrulemaking that embedded options in forward contracts and bookcouts are not swaps
and therefore will not be regulated as such.
Below are CMC's answers to the Commission's specific questions.

October 28, 2010
Page 3 of 7
Current Agricultural Swaps Business

1. How big is the current agricultural swaps business-'-including both agricultural swaps trading
under current part 35 and A TOs under §§ 32.4 and 32.13(g) ofthe Commission's regulations?
Unlike other forms of swaps, agricultural swaps markets are not as fully developed; however, we
believe they are robust and, as we discussed above, serve an important function for the industry.
Until the indusl1y has in place repotting requirements, it is difficult to estimate the size of the
agricultural swaps market.
2. What types ofentities are participating in the current agricultural swaps business?
We believe the participants in the agricultural swaps matkets are very similar to those using
futures and options for risk management. These include grain trading and processing finns,
elevator operators, energy companies, swaps dealets, proprietary trading finns, and others.
3. Are agricultural swaps/ATO participants significantly different than the types of entities
participating in other physical commodity swaps/trade options?
CMC believes the participants in the agricultural swaps and agricultural trade options (ATOs)
matkets are not significantly different from the entities participating in the market for other
physical commodity swaps/trade options. Similar to our answer to question 2, we believe market
participants use agricultural swaps and ATOs in the same way users of other physical commodity
swaps/trade options use those products.
Agricultural Swaps Clearing

4. Whatpercentage ofexisting agricultural swaps trading is cleared vs. non-cl"ared?
Until the indusny has in place reporting requirements, it is difficult to estimate the size of tl,e
agricultural swaps market.
5. What percentage of existing agricultural swaps would be eligible for the commercial end-user
exemption from the mandatory clearing requirement?
Based on our understanding of the end-user exemption and the composition of market
participants, we believe most users of commodity index swaps would not qualify for the
commercial end user exemption. However, based on a survey of our menlbership, we believe that
many users of individual commodity swaps such as grain traders and processors, energy
companies, and elevator operators likely would qualify for the end-user exemption.
A defiuitive answet to tllis questiou - and several otller similar questions asked by the
Commissiou - would depend fundamentally on how the CFTC defines a "swap". If embedded
options in a physical contract or book-outs are defined as "swaps", tl,en the percentage would be
higher. As stated above, the CMC believes that such transactions should not be defmed as swaps,
as the core business models of several companies that currently engage productively in tile
commodities markets would be dramatically and adversely impacted.
The CMC strongly supports the CFTC's efforts to bring more transparency to the markets, but
respectfully cautions that a "swaps" definition that is overly broad and captures too many
transactions would be economically detrimental to the markets and market participants, including
October 28, 2010
Page 4 of 7
commercial end users. A practical example of such a detrimental effect would he the widening of
hid-ask spreads from the current 2-3 cents to 30-40 cents in most agricultural commodities. This
would result in the drying up of liquidity.
6. What percentage of trading would be subject to the Dodd-Frank clearing requirement, if that
requirement applied automatically to agricultural swaps (other than those eligible for the
commercial end-user exemption)?
Unless the Commission retained the existing regulations under Part 35, as we discussed ahove,
our helief is the majority of agricultural swaps currently being traded would be subject to the
clearing requirement.
7. What would be the practical and economic effect of a rule requiring agricultural swaps
transactions (other than those eligible for the commercial end-user exemption) generally to be
,cleared? The Commission is interested in the views of agricultural swaps market participants
(both users and swap dealers), regarding a potential clearing requirement for agricultural
swaps.
CMC anticipates the practical and economic effects of mandatory clearing for agricultural swaps
to be both positive and negative. Positively, we expect to see a reduction of systemic risk by
mutualizing risk in the central counterparty clearing system. We also believe resources will be
more efficiently allocated with a reduced need to evaluate creditworthiness of counterparties and
improved market liquidity by reducing concern over counterparty credit risk.
While we expect to see these very strong positives from mandated clearing, we also anticipate
negative effects as well. For example, we expect to see an increase in the number and use of more
standardized transactions. Correspondingly, we believe there will be a loss of innovation as
customers lose the benefit of tailored risk management tools. We also anticipate increased costs
from the capital and margin requirements for clearing. Exchanges have proven their efficiency at
setting margins on standard contracts, but, historically, they have not had the necessary
experience to effectively establish margin for bilateral transactions.
8. What would be the practical and economic effect of requiring agricultural swaps to be cleared
under the Dodd-Frank clearing regime?
See our answers above.
Trading
9. Have current agricultural swapsiATO participants experienced any 'significant trading
problems, including:
(a) economic problems (i.e., contracts not providing an effective hedging mechanism, or
otherwise notperforming as expected);
(b) fraud or other types ofabuse; or
(c) difficulty gaining access to the agricultural swaps market?
We are not aware of any trading prOblems; however, we believe participants in ATO markets
have been extremely limited due to the complicated process for complying Wit11 ATO rules.
October 28, 2010
Page 5 of 7
Access to calendar swaps for corn, wheat and soybeans was enhanced following CFTC approval
of CME Group's 4c and 4d petitions for these products, as was access to the swaps on soft
commodities and wheat offered by ICE Clearing U.S. and KCBT Clearing, which allowed them
to be offered to eligible contract participants.
Agricultural Swaps Purchasers

10. Do agricultural swaps/ATO purchasers need more protections than participants in other
physical commodity swaps/trade options?
As we explained above, we do not believe agricultural swapslATO purchasers need more

protections than participants in other physical commodity swaps or trade options.
11. Ifso, why, and what should those protections be?
See our answer to question 10.
12. Would additional protections for agricultural swaps purchasers unduly restrict their risk
management opportunities?
Yes. Additional protections for agricultural swaps purchasers likely would restrict their risk
management opportunities. Requiring additional protection for agricultural swaps purchasers may
increase the costs associated with entering such swaps and decrease the liquidity of the
agricultural swap market. CMC believes that the Act offers ample protections for all swap market
participants and there is no reason to extend additional protections to purchasers of agricultural
swaps.
13. Should the Commission consider rules to make it easier for agricultural producers to
participate in agricultural swaps-for example, by allowing producers who do not qualify as
ECPs to purchase agricultural swaps?
As stated above, we encourage the Commission to set the same requirements for ECPs across all
asset classes; however, we encourage the CFTC to allow non-ECP market participants to continue
to trade in agricultural swaps on DCMs. Market participants should have the same ability to
engage in agricultural swaps as they do other swaps.
CMC would recommend against allowing non-ECPs to engage in OTC agricultural swaps.
Because agricultural swap participants and instruments are similar to other asset classes, the rules
and regulations that apply to agricultural swaps should be the same as those that apply to other
swaps. While we see no reason to restrict trading in agricultural swaps any more than for other
swaps, we also do not believe there is any reason to expand it beyond the boundaries outlined in
the Commodity Exchange Act or the Dodd-Frank Act.
Designated Contract Markets

14. Should agricultural swaps transactions be permitted to trade on DCMs to the same extent as all
other swaps are permitted on DCMs?
Yes, CMC believes that the rules and regulations applicable to non-agricultural swaps should
apply with equal force to agricultural swaps, including rules with respect to trading on DCMs.
October 28, 2010
Page 6 of 7
15. Ifyes, why?
Market participants use agricultural swaps for the same purposes as other swaps, i.e. hedging and
speculation. DCMs are already subject to comprehensive regulation by the CFTC and this
regulation offers a suitable level of protection for those market participants who choose to trade
swaps on DCMs. Furthermore, permitting agricultural swaps to trade on DCMs would increase
market transparency.
16. Ifno, what other requirements, conditions or limitations should apply?
CMC believes no other requirements, conditions or limitations should apply.
Swap Execution Facilities

17. Shoultl agricultural swaps transactions be permitted on SEFs to the same extent as all other
swaps are permitted to transact on SEFs?
apply with equal force to agricultural swaps, including rules with respect to trading on SEFs.
18. Ifyes, why?
ECPs use agricultural swaps for the same purposes as other swaps, i.e., hedging and speculation,
and should have the same tools available for all physical commodity swaps, whether agricultmal
commodities or not.
Trading Outside ofDCMs and SEFs

20. Should agricultural swaps be permitted to trade outside ofa DCM or SEF to the same extent as
all other swajJs?
apply with equal force to agricultural swaps, including rules with respect to trading in the OTC
market.
21. Ifyes, why?
Under the Act, only ECPs may transact swaps in the OTC market and most standardized swaps
must be cleared and exchange-traded. ECPs can evaluate and manage appropriately the risks
associated with OTC swaps and the Commission should not restrict their ability to enter
agricultural swaps.
Moreover, market participants use agricultural swaps for the same purposes that they use other
swaps and we are aware of no specific evidence that indicates users of these swaps need more (or
fewer) protections than the users of other swaps.
Over the past decade, the various agricultural constituencies have come to rely more on OTC
agricultural products and the technologies that facilitate trading in these products. We have also.
seen the development of a core group of commercial firms who have demonstrated experience in
October- 28, 2010
Page 7 of 7
serving as dealers in the aTC market f01: agricultural swaps. The Commission should allow the
aTC agricultural swap market to develop and evolve naturally without hindering the creation of
liquidity, just as in the cases of aTC market for other commodities.
23. Should agricultural swaps be permiUed to trade outside of a DCM 0/' SEF to a d!fferent extent
than other swaps due to the nature of the products and/or participants in the agricultural
swaps market?
No. CMC believes that agricultural swaps should be permitted to trade outside of a OCM or SEF
to the same extent as other swaps.
24. In general, should agricultural swaps be treated like all other physical commodity swaps under
Dodd-Frank?
Yes, agricultural swap should be treated like all other physical commodity swaps under the Act.
25. Ifyes, why?
The Act establishes a comprehensive regulatory scheme that both promotes the stability of the
U.S. financial system and provides protections for individual market participants. We are aware
of no difference between agricultural swaps and swaps in other physical commodities that would
require different treatment for agricultural swaps. Moreover, treating agricultural swaps just like
all other physical commodity swaps would enhance depth and liquidity in the markets.
26. If no, are there any additional requirements, conditions or limitations not already discussed in
other answers that should apply?
27. If agricultural swaps are generally treated like swaps in other physical commodities, are there
specific agricultural commodities that would require special or d!fferent protections?
As stated above, CMC believes agricultural swaps should be treated identically with other swaps.
There are no specific agricultural commodities that would require special or different protections.
If you have any questions or would like to discuss further, please do not hesitate to contact me via email
at christine.coclu·an@commoditymkts.org or via phone at (202) 842-0400 - ext. 101. Thank you in
anticipation of your attention to these COllunents.
Sincerely,
President
1300 L St., N.W. Suite.1020
CMC
Tel 202-842-0400
Fax 202-789-7223
www.cmcmarkets.org
January 3, 2011
VIA Electronic Mail

Mr. David Stawick
Secretary of the Commission
115521" Street, N.W.
RE: Advanced Notice of Proposed Rulemaking On Disruptive Trading Practices

RIN No. 3038-AD4
Dear Mr. Stawick:
Commodity Markets Council ("CMC"), on behalf of its many members, welcomes the opportunity to submit the
following comments to the Commodity Futures Trading Commission ("CFTC" or "Commission") regarding its
Advance Notice of Proposed Rulemaking ("ANPR") with respect to Section 747 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act ("Dodd-Frank"), Antidisruptive Trading Practices.
The new rules outlined in the Dodd-Frank Act are intended to protect fair and equitable trading; however, CMC is
concerned the statutory language is overly broad and if not implemented with precision could discourage market
participation. This fear was voiced by CMC and other industry groups althe CFTC roundtable on this topic and
we urge the Commission to strongly weigh it when drafting rules. There are three principles CMC would like to
see the CFTC follow in any future rulemaking:
1. The statutory language is vague and all implementing rules should provide precision and clarity in
order to facilitate legitimate trading activity.
2. Definitions of key terms need to be precisely crafted and the scope of application narrow.
3. The standard applied to "disruptive trade practices" should be intentional, deliberate or extreme
recklessness.
CMC is a trade association bringing together exchanges and their industry counterparts. The activities of our
members represent the complete spectnlln of commercial users of all futures markets including energy and
agriculture. Specifically, our industry member firms are regular users of the Chicago Board of Trade, Chicago
York Mercantile Exchange. CMC is lmiquely positioned to provide the consensus views of commercial and end
users of derivatives. Our comments represent the collective view of CMC members.
management products traded on U.S. futures exchanges. Through the Commission's diligent oversight efforts that
have fostered Exchange innovation and technology adoption, we have seen the commodity markets grow and
prosper. They 'have become deeper and more liquid, narrowing bid/ask spreads and improving hedging
effectiveness and price discovery. Meanwhile, liquidity, tcchnology, clearing quality, price and customer service
have driven mm'ket selection. All ofthese developments serve the interests of the trade as well as the public.
January 3, 2011
Page 20LJ
A. Vague Statutory Language
Section 747 of Dodd-Frank makes it unlawful for any person to engage in any trading practice or conduct subject
to the rules of a registered entity that
(a) "violates bids or offers",
(b) "demonstrates intentional or reckless disregard for the orderly execution of transactions during the
closing period," or
(c) "is of the charactcr of, or is commonly known as 'spoofing' (bidding or offering with the intent to
cancel the bid or offer before execution.")
CMC believes this language is far too broad and will encompass within its expansive anns otherwise legitimate
trading practices and strategies. While the CMC shares Congress' goals of greater market transparency and
preserved integrity, the vagueness of the language risks discouraging market participants from trading out of fear
their actions may later be detennined illegal- with potentially severe consequences.
Additiom;lly, the section grants the CFTC rulemalcing authority to prohibit" ... any other trading practice that is
disruptive of fair and equitable trading." CMC encourages the Commission to narrowly interpret and clarify this
language. Arguably, it cedes legislative authority to the CFTC and raises serious constitutional issues regarding
separation of powers.
B. Definition aud Clarify Needed
CMC wishes to add to the concerns we and other industry groups voiced at the Commission's recent roundtable as
well as the rising chorus of industry participants who have decried the vagueness of the legislation's language and
urges the CFTC to adopt regulations implementing Section 747 that provide clarity and precision in defining the
proscribed conduct. Absent clearly defined standards of conduct, legitimate trading practices will be chilled,
thereby affecting adversely the depth and liquidity of the futures and swaps markets. Congress could not have
intended such a result.
The statutory terms "violate bids and offers", "orderly execution of transactions during the closing period" and
"spoofing" need clarity and precise definition. TI,ey can have multiple meanings fi'om one context to the next. For
example, "violaie bid and offers" has most frequently been associated with the open outcry environment. It
appears to have no application to the electronic trading world where matching algorithms preclude bids alld offers
from being violated. CMC urges the COimnission to draft rules clarifying the language and limiting its application
to open outcry venues and only intentional or extremely reckless actions to violate bids and offers are prohibited.
Similarly, CMC recommends the CFTC provide precise clarity on what is meant by orderly execution during the
"closing period" and "spoofing." Market participants must be provided with specific standards to which to
confonn their conduct. "Orderly execution", "closing period" and "spoofing" without precise definition are
dangerously elastic terms.
C. Only Intentional Conduct Proscribed
With respect to the practices identified in (A) through (C) of Section 747, CMC believes it is imperative the
Commission also make clear tliat no violation occurs unless the person acts intentionally, deliberately or with
extreme recklessness. Extreme recklessness requires a showing either (l) that the alleged offender knew that the
conduct was prohibited or (2) that the conduct was so obviously wrong that tl,e alleged offender must have known
it was prohibited. Any lesser standard may ensnare inadvertent actions within the ambit of proscribed conduct,
thereby chilling market participation and impairing liquidity.
January 3, 2011
Page 3 of 3-
CMC urges the Commission, following extensive consultation with a broad spectrum of market participants, to
promulgate specific "rules of the road" within each of the statutory categories. Anything less poses a threat to
innocent traders and risks substantial harm to the markets. While the legislative goals are laudable, the means to
achieve them must be fair and clear for all market participants. We believe doing so will serve the interests of the
trade, lawmakers, regnlators and the general pnblic.
The CMC thanks the Commission for the opporlunity to present its views on this most important snbject. If you
have any questions or would like to discnss further, please do not hesitate to contact me via email at
christine.cochran@cOlmlloditymkts.org or via phone at (202) 842-0400 - ext. 101. Thank you in anticipation of
yom attention to these comments.
Regards,
~~
President
1300 L St., NW. SUite 1020
- -Washington, DC 20005
CMC
Tel 202-842-0400
Fax 202-789-7223
www.cmcmarkets.org
January 3, 2011
VIA Electronic Mail

Mr. David Stawick
Secretary of the Commission
Commodity Futures, Trading Commission
115521 ,t Street, N.W.
RE: Notice of Proposed Rulemaking On Prohibition of Market Manipulation

RIN No. 3038-AD2
Dear Mr. Stawick
Commodity Markets Council eCMC"), on behalf of its many members, welcomes the invitation to submit the
following comments to the Commodity Futures Trading Commission ("CFTC" or "Commission") Notice of
Proposed Rulemaking ("NOPR") on prohibition of market manipulation.
The CMC and its members are long-standing proponents of integrity and transparency in U.S. futures markets.
The competitive strength and viability of our markets and their ability to serve the price discovery and risk
management needs of their users, is directly dependent on these principles. Without public confidence in
adherence to these values, there can be no effective and efficient marketplace.
It is equally important market participation does not become the unintended victim of overly broad and ill-
conceived efforts to promote market integrity. The CFTC's mission is two pronged. The Commission is tasked
with protecting market users and tlle public from fraud, manipulation and abusive practices, while at the same time,
fostering open, competitive and financially sound markets. Poorly crafted legislative language designed to protect
against fraud or deception may risk grave hann to the markets and fail to provide real protection for its
participants. Absent well-defined rules tailored to the unique characteristics of the futures market, more hann than
good may be done.
agriculture. Specifically, our industry member finns are regular users oftlle Chicago Board of Trade, Chicago
Mercantile Exchange, ICE Fu(mes US, Kansas City Board of Trade, Minneapolis Grain Exchange and the New
York Mercantile Exchange. CMC is uniquely positioned to provide the consensus views of commercial and end
The businesses of all our member finns depend upon tl,e efficient and competitive functioning of the risk
management products traded on U.S. futures exchanges. Through the COlmnission's diligent oversight efforts that
have fostered Exchange innovation and technology adoption, we have seen the commodity markets grow and
prosper. They have become deeper and more liquid, narrowing bid/ask spreads and improving hedging
effectiveness and price discovery. Meanwhile, liquidity, tec1U1ology, clearing quality, price and customer service
have driven market selection. All of these developments serve the interests of the trade as well as the public.
.January-3,-2011
Page 2 of 3
Section 753(c)(I) seeks to proscribe fraud-based manipulative conduct. On its face, the provision borrows heavily
from the experiences and language of securities' law regalation. Clear differences between the securities and
futures markets render this approach dubious at best. The analogae of an issuer with fiduci'lly obligations is
simply not present in the futures world. Insider trading rules have only a limited application in futures markets,
and are usually restricted to exchange or government personnel and. infonnation. Duties of disclosure flowing from
fiduciary relationships have no parallel in futures markets. The effort to borrow the experiences and rules of one
market mld apply them to another that exists for different purposes and that functions in a different mmmer is
inappropriate. CMC believes it will lead only to confusion mId disruption.
A. The Scienter Requirement
At a minimum, CMC encourages the CFTC to set extreme recklessness, not mere recklessness or negligence, as the
scienter standard under tl,e proposed rule. Announcing the proposed scienter stmldard " ... will be tailored to tl,e
facts and circmnstances of each case", as the NOPR does, provides no guidance at all. Ifthere is any place for
application of the securities' law paradigm, it is found in its judicial precedent interpreting the intent-based scienter
. requirement under SEC Rule IOb-5.
B. The Need For Clarity
The langaage of Section 753 is extremely broad. It needs precise regulatory definition so market users will have
. adequate notice of what conduct is prohibited. The "I know it when I see it" approach is both constitutionally
suspect under the due process clause and fails as a regalatory gaidepost.
For example, the proscribed conduct in Section 753(a) mandates that it must be "in connection with any swap or
contract of sale of any commodity in interstate commerce...." The "in connection with" language is distinctly
different than parallellangaage in other anti-fraud statutes or rules. In other similar rules, the wrongful conduct
must OCClli' in cormection with "the purchase or sale" of the product being regulated.
As currently proposed, the Commission explains the "in connection with" nexus would be satisfied" ... whenever
misstatements or other relevant conduct are made in a manner reasonably calculated to influence market
participants." CMC believes this gaidance is far too broad to provide any meaningful direction. Moreover, we are
concerned it is so broad that it may even capture casual statements about general conditions affecting markets, such
as observations about weather, crop yields, or interest rate volatility. We urge the Commission to clarify its rule
does not reach such conduct and that "in cOlmection with" must be tied to a specific market transaction (I.e., the
pmchase or sale of a swap or a futures contract).
C. The Price Manipulation Test
Pursuant to its general authority under Section 8(a)(5) of the Commodity Exchange Action ("CEA"), the
Commission also is proposing a rule under the new Section 6(c)(3) of the CEA. TIle proposal merely repeats the
langaage of Section 753(c)(3) making it "unlawful for any person to manipulate or attempt to manipulate the price
of any swap or any commodity in interstate commerce or for future delivery on or subject to the rules of mlY
registered entity."
The CMC supports the Commission's reaffinned connnitment to the four-part test for price manipulation. It is
consistent with established legal precedent Witll which market participants are familiar. In Re Di Placido,
2008WIA831204 (CFTC 208), aff'd in pertinent part, Di Placido v. Commodity Futmes Trading Comm, 364 Fed
Appx. 657,2009 WL 3326624 (2d Cir. 2009). Since Placido is good law, CMC recommends the Commission
clarify Section 6(c)(3) does not confer any additional enforcement authority.
Also, the CFTC's statement that the "conclusion that prices [are] affected by a factor not consistent with nonnal
forces of supply and demand will often follow inescapably from proof of actions of the alleged manipulator" is a
misreading ofjudicial precedent like Di Placido. The Commission should make clear the proposed rule does not
. January 3 ,2011
Page 3 of 3
create a presumption that a price is artificial merely because one or more isolated transactions are deemed
uneconomic without proof of a specific intent to move prices. There are a variety of valid commercial reasons for
engaging in transactions that may appear on the surface to lack economic rationale, but which are not intended to
move prices, e.g., hedging during the closing period. TI,ese trading activities should be distinguished from the
egregious conduct present in Di Placido and similar cases. The Commission's effort to avoid its burden of proof of
"artificial price" with the "inescapable conclusion" approach should be disavowed.
The CMC thanks the COlmnission for the opportunity to present its views on this most important subject. [fyou
christine.cochran@commoditymkts.org or via phone at (202) 842-0400 - ext. 101. Thank you in anticipation of
your attention to these comments.
President
1300 LSI., N.W. Suite 1020
CMC
Tel 202-842-0400 _.
Fax 202-789-7223
www.crncmarkets.org
December 14, 2010
David Stawick
Secretary
TIltee Lafayette Centre
1155 21 st Street, NW
RE: Speculative Position Limits Pre-Rulemaking Comments
Dear Mr. Stawick:
The Commodity Markets Council ("CMC") appreciates the opportunity to submit the following comments for
consideration by the Commodity Futures Trading Commission ("CFTC" or "COlmnission") in advance of its
planned rulemaking on position limits for certain contracts in exempt and agricultural commodities.
agriculture. Specifically, our industry member firms are regular users ofthe Chicago Board of Trade, Chicago
York Mercantile Exchange. CMC is uniquely positioned to provide the consensus views of commercial and end
management products traded on U.S. futures exchanges. Through the Commission's diligent oversight efforts
that have fostered Exchange innovation and teclmology adoption, we have seen the commodity markets grow
and prosper. They have become deeper and more liquid, narrowing bid/ask spreads and improving hedging
effectiveness and price discovery. Meanwhile, liquidity, technology, clearing quality, price and customer service
have driven market selection. All of these developmellts serve the interests of the trade as well as the public.
CMC supports the concept of position limits, whether set by an exchange or the CFTC, but only where such
limits are necessary to prevent or diminish price distortions resulting from excessive speculation. In that
circumstance, the price discovery and risk management functions of the market are disrupted and public
confidence is undercut.
CMC does not believe speculation is synonymous with manipulation or is it an inappropriate practice. As the
Commission appreciates, speculation is essentiaL It provides liquidity and ensures the price discovery and risk
management functions of the market are achieved.
The CEA, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"),
makes clear, the Commission's authority to set position limits is designed not to restrict speculation, but to
prevent "unWillTanted and unreasonable fluctuations resulting from excessive speculation... ".
December 14,2010
. Page20f 3
Moreover, the statute mandates that before position limits are imposed, the Commission must find (I) that there
has been "excessive speculation" and (2) that the excessive speculation has resulted in "nnwarranted and
unreasonable price fluctuations." CEA, Section4a(a)(l)1. Even the new subsection 4(a)(2) confirms that any
position limits set thereunder must be established "[i]n accordance to the standards set forth in paragraph I of
this subsection."
CMC believes Congress authorized the Commission to set position limits only in the limited circumstances
where excessive speculation has resulted in unwarranted price fluctuations. The statue does not grant a general
authority to sct position limits.
There are some market participants that believe the activities of large speculators were solely to blame for the
mn-up in commodity prices in 2007 and 2008. However, the experience of many of our members and a review
of the empirical evidence does not support the view that speculation was the sole or even pdmary reason for
price volatility in the market. Instead, most economists conclude that supply and demand fundamentals aud
other macroeconomic factors proved to be the most significant factors driving the markets at that time.
For example, the CFTC's study following the 2008 rise in oil prices concluded the price movements were the
result of nonnal supply and demand factors. See, CFTC Interagency Task Force au Commodity Markets,
Interim Report On Cmde Oil at 3-4 (July 22, 2008). The Government Accouutability Office in 2009 reviewed
most of the empirical and anecdotal studies on "speculative tradiug" and reached the same conclusion. See
GAL-09-285R, Issues Involving the Use of the Futures Markets to Invest in Commodity Indices at 5(30) 2009.
Against this background, CMC urges the Coinmission to conduct a thorough empirical analysis of pricing and
market data before it imposes any position limits on futures, options or swaps contracts in exempt or agricultural
commodities. CMC agrees with the commentary fIled by CME Group that this is a subject best left to futures
exchanges to address through existing market surveillance programs on a contract by contract basis. Exchanges
and the Commission have developed an expertise in maintaining orderly markets, including setting appropriate
reportable levels, position limits and accountability levels relative to energy, metal and agricultural markets.
This system provides the flexibility necessary to prevent excessive speculation while preserving transparent and
liquid markets.
CMC believes this flexible regulatory approach is a more effective way to address potentially manipulative and
disruptive positions. Indeed, the failure of any empirical studies to identify nnwarranted price fluctuations due to
excessive speculation suggests these programs have been successful in promoting market stability and avoiding
unwarranted disruptions. hnposing artificial position limits in this context could harm market liquidity.
If the Commission makes the necessary findings supported by demonstTable evidentiary data, CMC would
nonetheless urge the Commission to proceed cautiously and judiciously in setting limits for given futures,
options or swaps. '
The new Dodd-Frank amendments contain various and somewhat confusing timing requirements for the exercise
of the Commission's authority in this area, but they all vest the Commission with discretion, premised upon the
necessary findings, to establish limits "as appropriate." Thus, the Act contains an element of flexibility so that
the Commission need not act until it deems that position limits in a given area are "appropriate."
1 The Commission also must publish the required finding and information in support of establishing such position limits in
any notice of proposed rulemaking in order to comply with the requirements oftlle Administrative Procedure Act. Absent
such a finding and supporting information, the public's ability to comment on the proposal is compromised because it lacks
an understanding of the Commission's reasoning. (See, e.g. Am. Merl. Assoc. v. Reno, 57 F 3rd 1129, 1132, D.C. Cir.
1995)
December 14,2010
- Page-3 of 3
Additionally, Section 4a(a)(2)(C) mandates the Commission act to avoid shifting the price discovery function to
foreign boards of trade (FBOTs). We believe Congress was concemed mmecessary restrictions on trading
positions threaten to reduce liquidity and adversely affect the hedging and price discovery functions of the U.S.
commodity markets. Moreover, the Financial Services Authority recently armounced its decision to not impose
speculative position limits.
Underthe CEA, as amended by Dodd-Frank, the Commission also has been granted broad exemptive authority
from any position limit rule. The CMC urges the Commission to use its exemptive authority to pennit market
participants to use futures, options and swaps contracts to manage the risks they face in their particular
enterprises. Given the inter-connectiveness and correlation between various markets, many entities use the
commodities markets to hedge risks in other markets as well as in physical commodities. CMC recommends the
Commission use its exemptive authorily to take account of these factors.
The CMC thanks the Commission for 'the opportwlity to present its views on this most important subject. If you
christine.cochran@conl1noditymkts.org or via phone at (202) 842-0400 - ext. 101. Thank you in anticipation of
your attention to tl,ese COlllil1ents.
President
Commodity-Markets-Coullcif
1300 L St., N.W. Suite 1020
CMC
Tel 202-842-0400
Fax 202-789-7223
www,cmcmarket5.org
September 20,2010
David Stawick
Secretary
11S5 21st Street, NW
Re: Definitions Contained in Titfe VII of Dodd-Frank Wall Street Reform and Consumer
Protection Act
Dear Mr. Stawick,
The Commodity Markets Council (CMe) thanks the Commodity Futures Trading Commission (CFTC or
Commission) for the opportunity to provide comments on the Title VII definitions in the Dodd-Frank Act
before the CFTC embarks on associated rulemakings. Definitions are, of course, fundamental to any
subsequent rulemaking, and must be addressed with due deliberation.
CMC is a trade association bringing together commodity exchanges with their industry counterparts.
The activities of our members represent the complete spectrum of commercial users of all futures
markets including agriculture. Specifically, our industry member firms are regular users of the Chicago
Board of Trade, Chicago Mercantile Exchange, ICE Futures US, Kansas City Board of Trade, Minneapolis
Grain Exchange, and New York Mercantile Exchange. CMC is uniquely positioned to provide the
consensus views of commercial end-users of derivatives exchanges and the exchange markets. Our
comments below represent the collective view of the CMC's members.
Congress and the President enacted The Dodd-Frank Wall Street Reform and Consumer Protection Act
(the Act) in response to the financial crisis in 2008-09 with the purpose of establishing a prescriptive
regulatory framework for systemically risky financial institutions and instruments. Since 2008, CMC has
advocated for increased transparency and regulation of such institutions and instruments; however, we
do not believe the Act was intended to prescriptively regulate of/firms and aI/ instruments that operate
in financial markets. While Congress created a prescriptive reguiatory framework, it provides the CFTC
with fiexibility to implement the law in a way that continues to promote and maintain the efficiency of
US markets. CMC encourages the Commission to recognize the protections already embedded in swaps
which exchanges agree to list, trade and accept for clearing. We also ur(5e you to make the necessary
distinctions as the CFTC makes decisions related to definitions.
Defining "Swaps Dealers"

Cleared over-the-counter (OTe) siNaps would be subject to exchange rules of credit assessment and
margining. Moreover, clearing members of the exchanges are subject to a thorough credit analysis and
required to provide reguiar financial reporting. These clearing members in turn require a margin and
credit analysis of their customers. Entitles that exclusively trade exchange-cleared swaps mark their
positions to market and are assessed a daily margin. The clearing house also verifies the provision and
maintenance of adequate liquidity buffers to cover extreme markets swings.
Despite these protections, CFTC Chairman Gary Gensler recently suggested the Commission could
classify as many as 200 firms as "Swap Dealers" (SO), subjecting them to additional capital and
margining requirements. CMC supports the Commission in its mission to curb systemically risky
institutions and instruments; however, we ask the CFTC to use caution in drafting definitions so broad as
to impede the creation and flow of capital and liquidity in the financial markets.
CMC recommends that entities which only trade exchange-cleared swaps be exempt from the SO
definition. This will ensure commercial end users continue to utilize deep OTC markets with adequate
liquidity to effectively hedge their risks. We are concerned increased capital and margining
requirements will correspondingly increase the cost of compliance and opportunity cost of capital for
entities which only trade exchange-cleared OTC swaps. These costs could result in firms ceasing or
reducing their use of such Instruments which would decrease the liquidity of currently robust markets.
The Act specifies that an SO or Major Swap Participant (MSP) designation does not apply across all asset
classes. There is concern within the industry that once a firm is designated as such for one asset class it
will be regulated as such for all'asset classes. CMC would ask the Commission to clarify its position on
this issue.
Defining Yield Swaps

There are market participants (e.g. reinsurance companies) that offer risk mitigant products, i.e.
"swaps," that reference "yield" (in bushels per acre on corn, soybeans, wheat and other commodities) as
the underlying asset. The CMC wouid like to ensure that such products are included in the definition of
IIswaps1J.
Defining "Futures Commission Merchants"

The Act expanded the definition of a Futures Commission Merchant (FCM) to include many new
categories, one being any entity that solicits or accepts swaps. Understanding the markets for physically
traded commodities, CMC is concerned this language could be interpreted in a manner. that adversely
impacts the businesses of our members by capturing firms which are not traditional FCMs and do not
operate as such. For example, a firm trading only exchange-cleared swaps could be defined as both an
SD and an FCM, which would treat the firm as systemically risky despite the proven safeguards of being
exchange-cleared.
The CMC appreciates the opportunity to submit these comments, and we look forward to working with
the Commission in the weeks and months ahead. If you shouid have any questions, please do not
hesitate to contact us.
Sincerely,
~~
CHRiSTINE M. COCHRAN
President
RejJre.~ellfillg the II/teresls (~r America's II/rllfs/rial EIIC'rgy U,w'r.~ .~iJlce 1978
January 11,2011
The Honorable Darrell Issa

Chailman
Committee on Oversight & Government RefOim
Dear Chailman Issa,
CIBO wonld like to thank you for the opportunity to help identify existing and proposed
regulations that could negatively impact jobs and job growth at our members' facilities.
The Council of Industrial Boiler Owners (CIBO) is a national trade association of over
110 members including industrial boiler owners, architect engineers, related equipment
manufacturers, and universities representing 20 major industrial and institutional sectors.
CIBO has been working to (1) promote the exchange of information between industry
and government relating to energy and environmental policies, laws, and regulations
affecting industrial boilers and the manufacturing and institutional energy base of our
country; (2) promote technically sound, cost-effective laws and regulations; and (3)
improve energy and environmental performance, reliability and cost-effectiveness of
members' operations through technical interchange. CIBO's membership represents
industries as diverse as chemicals, paper, cogeneration, metals, automotive, refining,
brewing, combnstion engineering, and food products. CIBO members also inclnde
operators of boiler facilities at over a dozen major universities. For 32 years, CIBO has
been promoting better integration of our nation's policies tmd regulations to achieve
energy and environmental benefits.
EPA regulations for Greenhouse Gas Emissions, Boiler MACT, Fossil Fuel Ash
Classification, Clean Air Transport Rule revisions, ShOit Term S02 and N02 NAAQS,
Water Effluent rules, Cooling Water Intake rules, NAAQS for Particulate Matter, Ozone
and S02, and other rules, can all have negative impacts on existing and potential new
jobs within the United States. While it is difficult to project the cost of any regnlation
prior to its actual implementation, it is possible to identify reasonable costs when
equipment suppliers, owners and operators and consnltants work together. With the
current EPA indnstrial, commercial and institutional (ICI) energy system databases and
state inventories, it should be possible to develop more realistic representations of costs.
EPA should be working with the actual people having to make modifications and install
elBo, 6035 Burke Centre Parkway, Suite 360, Burke, VA 22015 - 703-250-9042
technology to develop better environmental compliance costing models for
industrial/commercial/institutional energy facilities and not only the equipment suppliers,
regulators and environmental community who have never designed or operated the
equipment.
However, even with the best cost data, it is impossible to assess the true economic impact
of any rule or regulation using the cost beuefit analysis currently conducted at EPA. At
some point a true economic impact evaluation should be completed to consider jobs put
at risk of being lost, potential federal and state tax revenue and GDP losses, to be
compared with the direct health benefits and potential new jobs that could be gained from
compliance versus product line or facility closure. At this point there is disagreement
regarding how this should be done. It could be worthwhile for a National Academy of
Sciences panel to be developed to consider or develop a protocol for this type of activity.
cmo has been very active over the last 15 years with Boiler MACT Rule development.
As such, we developed an estimated installed capital cost based on use of best available
compliance technology application on a unit-by-unit basis using the EPA database. This
generated a conservative compliance capital cost of $20.7 billion compared to EPA's
$9.6 billion. Interested in identifying what this meant in negative impacts to the
boiler/process heater industrial/commercial/institutional owner sectors and country
overall, we contracted IHS Global Insight to do an Economic Impact Analysis over the
range of industry and institutional sectors we represent. The results were a staggering
potential 338,000 US jobs put at risk of being lost, and $5.7 billion in lost tax revenues if
all units were equipped to attempt to meet the rule as proposed. While we believe the
cost of any regulation that in effect raises the cost of energy to the
industrial/commercial/institutional sector could have the same relative effect, more
research and real cost information on an industry-by-iildustry, unit-by-unit basis would
also be helpful in better understanding the rule's impacts. Attached is a copy of the cmo
IHS Global Insight Report and CIBO statement regarding its release. The approach of
this Report could provide a template for impact analysis for other EPA rules.
We appreciate your request for information and would be happy to answer any questions
you may have.
Again, thank you for this opportunity.
Robert D Bessette
President
Council of Industrial Boiler Owners
-
CillO, 6035 Durke Centre PUl'kway, Suite 360, Burke, VA 22015 - 703-250-9042
The Economic Impact of Proposed
EPA Boiler/Process t-ieater MACT Rule on
Industrial, Comrnercial, and Institutional Boiler
and Process Heater Operators
C'::nt JneJI of Inch mtrlnl ROIIAl" ()wm~n:;

ABO UTI H S G LOB A LIN S IG H T
IHS Global Insight is widely recognized as the most consistently accurate
economic forecasting firm in the world. With over 600 economists,
statisticians, and industry specialists in 25 offices worldwide, IHS Global
Insight has a well-established track record for providing rigorous, objective
forecast analysis and data to governments and businesses around the world.
Among our areas of expertise are the economic impact, tax implications, and
job-creation dynamics within multiple sectors core to national, state and local
economies. In this capacity, we help governments and companies at all levels
interpret the impact of proposed investments, policies, programs, and
projects.
IHS Global Insight was formed by the merger of DRI and WEFA. Still active in
an advisory capacity to the firm is the original founder of WEFA, Lawrence R.
Klein, the 1980 winner of the Nobel Prize in Economics.
IHS(NYSE: IHS) is a leading source of information and insight in pivotal

areas that shape today"s business landscape: energy, economics, geopolitical
risk, sustainability and supply chain management.
FOR MORE INFORMATION

Richard Fullenbaum
(202) 481-9212
richa rd. fu lien ba um@ihsglobalinsight.com
Brendan O'Neil
(202) 481-9239
bre nd an. one il@ihsglobalinsight.com
IHS Global Insight

1150 Connecticut Avenue NW
Suite 200
CKOBAL The Economic Impact of Proposed EPA BoilerlProcess
-INSISHT- - Heater MAGT Rule on Industrial, Commercial; and
Institutional Boiler and Process Heater Operators
Executive Summary
Every billion dollars spent on MACT upgrade and compliance costs
will put 16,000 jobs at risk and
reduce US GDP by as much as $1.2 billion.
In June 2010, the Environmental Protection Agency (EPA) proposed new Maximum
Achievable Control Technology (MACT) standards for industrial boilers and process
heaters, which would impose stringent emission limits and monitoring requirements for
eleven subcategories of boilers and process heaters, based on fuel type and unit design.
These standards, which are intended to address hazardous air pollutant (HAP)
emissions, would impose tight limits on five HAPl"surrogate" pollutants:
(iii. Mercury (Hg),
eo Hydrogen Chloride (HCI),
8 Partic.ulate Matter (PM),
@Io Carbon monoxide (CO), and
flo Dioxins/Furans (D/F).
EPA contends that implementing the proposed MACT standards for these five pollutants
will minimize emissions of all HAPs. Under the proposed rule, sources (boilers and
process heaters) 10 MMBtulhr and greater will be required to comply with numerical
emission limits for PM, HCI, Hg, CO, and dioxin/furan. Sources 100 MMBtu/hr and
greater will be required to install CO CEMS and sources 250 MMBtu/hr and greater that
fire solid fuels or residual fuel oil will be required to install PM CEMS. Compliance with
the other emission limits would be determined through fuel analyses, performance tests,
and parametric monitoring.
The Council of Industrial Boiler Operators (CIBO) believes its members may be SUbject
to significant economic hardship should the proposed EPA rules regulating boiler
emissions be adopted. Potential consequences include the shuttering of domestic
manufacturing capacity - and the associated jobs loses -- for those CIBO members that
find the capital costs associated with compliance via plant retrofitting make it
economically unfeasible to continue operations.
CIBO commissioned IHS Global Insight to conduct a study to quantify the economic
impact of compliance by all affected sources to the proposed standards under three
scenarios.
-tKaB'AL The Economiclmpacl of Proposed EPA Boiler/Process
Heater MACT Rule on Industrial, Commercial, and
INSIGHT Institutional Boiler and Process Heater Operators
,~ Scenario 1: The mpacl of upgrade costs for all proposed standards

'l!II Scenario 2: The mpact of the HCI upgrade costs only
'til Scenario 3: The impact of upgrading Gas 1 units to comply with all of the
potential standards described by EPA in the proposed rule Preamble if they
were to impose emission Iim1ts instead of the proposed work practice
standard approach
This report presents the results of IHS Global Insight's assessment of the economic
impact of compliance to the MACT standards for all affected boiler and process heater
owners. For each of the three scenarios, we utilized a methodology that determined the
direct (vendor- or regulated entity in this case), indirect (supplier) and induced (wage)
impact of the MACT standards on five primary areas of economic activity:
'1iIJ Employment: the number of jobs potentially "at risk" of being eliminated as a
consequence of compliance with the standards;
Labor Income: The employee compensation potentially forfeited due to
compliance to the new standards;
of! Value Added: The economic contribution to the US Gross Domestic Product
that could be affected by implementing the standards;
of! Industry Output: The industry sales lost as elBO members either shutter
plants or attempt to pass the costs on to their customers.
'til Tax Implications: the potential loss of federal as well as state and local tax
receipts.
This report presents the detailed findings of the study, which are summarized in the table
below. Across all three scenarios we found that, every $1 B spent on upgrade and
compliance costs will put 16,000 jobs at risk and reduce US GDP by as much as
$1.2B. A significant portion of this economic pain will be felt in supplier networks.
- .•.,
INSIGHT
The Economic Impact of Proposed EPA Boiler/Process
Potential Total Economic Impact

';- ------ ---Scenario1-- - -- - Scenario 2 ----Scenario-3 --
"
"J,
Employment 337,703 152,552 798,250
Labor Income $15.28 $6.98 $38.08
Value Added $25.28 $11.48 $63.38
Output $67.48 $3Q.48 $172.58
Taxes $5.78 $2.68 $14.38
Source: Results generated by IHS Global Insight from IMPLAN model
The Economic-Impact ofProposed EPA Boiler/Process
Introduction
In June 2010, the Environmental Protection Agency (EPA) proposed new Maximum Achievable
Control Technology (MACT) standards for industrial boilers and process heaters, which would
impose stringent emission limits and monitoring requirements for eleven subcategories of boilers,
based on fuel type and unit design. These standards, which are intended to address hazardous
air pollutant (HAP) emissions, would impose tight limits on five HAPf'surrogate" pollutants:
4lI Mercury (Hg),
~ Hydrogen Chloride (HCI),
~ Particulate Matter (PM),
<I!lI Carbon monoxide (CO), and
<I!lI Dioxins/Furans (D/F).
The proposed limits, by source-type are detailed in the following table.
Existing
Coal Stoker .02 .02 .000003 50 .003
Coal Fluidized Bed .02 .02 .000003 30 .002
Pulverized Coal .02. .02 .000003 90 .004
Biomass Stoker .02 .006 .0000009 560 .004
Biomass Fluidized Bed .02 .006 .0000009 250 .02
Biomass Suspension .02 .006 .0000009 1010 .03
Biomass Fuel Cells .02 .006 .0000009 270 .02
Liquid .004 .0009 .000004 1 .002
Gas (Other Process Gases) .05 .000003 .0000002 1 .009
New
Coal Stoker .001 .00006 .000002 7 .003
Coal Fluidized Bed .001 .00006 .000002 30 .00003
Pulverized Coal .001 .00006 .000002 90 .002
Biomass Stoker .008 .004 .0000002 560 .00005
Biomass Fluidized Bed .008 .004 .0000002 40 .007
Biomass Suspension .008 .004 .0000002 1010 .03
Biomass Fuel Cells .008 .004 .0000002 270 .0005
Liquid .002 .0004 .0000003 1 .002
Gas (Other Process Gases) .003 .000003 .0000002 1 .009
I Pounds per mill10n British Thermal Units (BTUs)
2. (ppm @3% oxygen)
3 (ng/dscm @7% oxygen)
Source: EPA
-SUIUI. The Economic Impact ofProposedEflA Boiler/Process
INSIGI-IT Institutional Boiler and Process Heater Operators
EPA contends that implementing the proposed MACT standards for these five pollutants will
minimize emissions of all HAPs. Sources (boilers and process heaters) with heat input greater
than or equal to 100 MMBtu/hr would be required 10 install continuous emission monitors for CO
and coal, biomass, or residuai oil fired boilers and process heaters with heat input greater than or
equal to 250 MMBtu/hr wouid be required to install continuous emission monitors for PM in order
to demonstrate compliance with the corresponding limits. Compliance with the other emission
limits would be determined through fuel analyses, performance tests, and parametric monitoring.
The Council of Industrial Boiler Operators (CIBO) is the trade association representing the
interests of non-utility energy producers and users in the United States. As such, CIBO's
membership represents a diverse set of major manufacturing industries that use industrial boilers
and process heaters and related technologies. CIBO believes its members may be subject to
significant economic hardship should the proposed EPA rules regulating boiler and process
heater emissions be adopted. Potential consequences include the shuttering of domestic
manufacturing capacity - and the associated jobs loses -- for those CIBO members that find the
capital costs associated with compliance via plant retrofitting make it economically unfeasible to
continue operations.
CIBO commissioned IHS Global Insight to conduct a study to quantify the economic impact of
compliance by all affected sources to the proposed standards under three scenarios. The study,
which focused on upgrade costs only, did not include on-going operations and maintenance costs
companies would incur in subsequent years.
~ Scenario 1: The impact of upgrade costs for all proposed standards

~ Scenario 2: The impact of the HCI upgrade costs only
• Scenario 3: The impact of upgrading Gas 1 units to comply with all of the potential
standards described by EPA in the proposed rule Preamble if they were to im pose
emission limits instead of the proposed work practice standard approach
IHS Global Insight utilized a methodology that determined the impact of the MACT standards on
five primary areas of economic activity:
fI1 Employment: the number of jobs potentially "at risk" of being eliminated as a
consequence of compliance with the standards;
fi Labor Income: The employee compensation potentially forfeited due to compliance
to the new standards;
fIl Value Added: The economic contribution to the US Gross Domestic Product that
could be affecteq by implementing the standards;
tl' Industry Output: The industry saies lost as affected sources either shutter plants or
attempt to pass the costs on to their customers.
til! Tax Implications: the potential lose of federal as well as state and local tax receipts.
Because any change to the economic conditions of a given industry sector or

commercial/institutional entity can have faHeaching consequences on other industries and
entities and the overall economy, IHS Global Insight's analyses captured the economic impact on
three levels. The first quantifies the impact on those facilities that will bear the direct costs of
upgrading their boilers and process heaters to comply with the standards (direct impact). The
second level measures the impact on the supply chains of the direct industries (indirect impact).
The third level assesses the impact on economic activity attributable to spending by employees of
the direct and indirect industries (induced impact). These classes of economic impact are
discussed in-depth in the following section and in Appendix B.
The total economic impact (direct + indirect + induced) for each of the scenarios is shown in the
table below. Across all three scenarios we found that, every $18 spent on upgrade and
compliance costs will put 16,000 jobs at risk and reduce US GOP by as much as $1.28. A
significant portion of this economic pain will be felt in supplier networks.
Summary of Potential Total Economic Impact

:---- ~--- .- - ----~Sceriario-f ---~ Scenario2-- - "Scenario-3 -
P
,'t:!
'"
Employment 337,702 152,553 798,250
Labor Income $15.28 $6.98 $38.08
Value Added $25.28 $11.48 $63.38
Output $67.48 $30.48 $172.58
Taxes $5.78 $2.68 $14.38
Source: Results generated by IHS G/obal insight from IMPLAN model

·'fHDBAL· The EcolTomic Impact Of Proposed EPA Boiler/Process
INSIGl-fT Institutional Boiler and Process Heater Operators
APPROACH
Changes to business operating climates, regulatory or policy environments, or capital project
priorities affect economic activity. The total economic impact of these changes is separated into
three distinct parts: direct, indirect, and induced. The direct impacts measure the degree to which
economic activities are altered within those industries directiy affected by the changes. The
indirect impact represents the corresponding ·effects on suppiiers to the direct sectors. This would
include, for example, steel tube suppliers to a drill operator. The induced impact adds the effect
of spending from wage and other income derived from the direct and indirect sectors.
In assessing the economic impact of the EPA rule changes on the US economy, IHS Global
Insight assumed that the upgrade costs borne by each industry due to the regulations result in a
corresponding and equal loss in potential output. An increase In capital costs, impacting specific
facilities across a broad range of industries, wili likely be managed in a variety of ways by those
directly affected. The impacted companies could choose outside financing, or finance it through
cash reserves/ profits, pass the cost along to their customers, or decide to avoid the upgrade
costs and cease operations. Because of this, the methodology of treating the upgrade costs as a
corresponding and equal loss in potential output is a direct and standard methodology to examine
such a situation that provides clarity to the process and consistency across industries.
Building off a boiler and process heater inventory database provided by CIBO', we were able to
estimate the following upgrade costs by industry sector.
~ Scenario 1: The upgrade costs for all proposed standards totaled $20.7B
~ Scenario 2: The HCI-only upgrade costs summed to $9.3B
fi Scenario 3: The costs of upgrading Gas 1 units were estimated at $51.7B
These industry-level capital costs served as primary inputs to the IMPLAN 2 modeling framework,
which was used to quantify the economic impact (employment, labor income, value added,
output, and tax receipts) along the following dimensions:
~ Direct Impact: The impact on economic activity in the facilities that must incur the costs of
implementing the required boiler upgrades. Leveraging the boiler and process heater
inventory database, we determined the cross-industry distribution of the capital costs
required to implement the proposed changes. For each affected sector, these capital
expenditures were assumed to result in corresponding and equal decreases in output.
1 The boiler inventory database used in this study based on work by URS Corporation-that was. commissioned by eIBO,
based on EPA'a major source boiler inventory database table. Please see Appendix A for an overview of the
methodology used to determine the upgrade and compliance costs.
2 IHS Global Insight used the IMPLAN model for the entire US economy to quantify the economic Impact of the proposed
EPA rule changes. The IMPLAN model 'closely follows the accounting conventions used in the U.S. Department of
Commerce Bureau of Economic Analysis (BEA)'s definitive 1980 study, Input-Output Study of the U.S. Economy, and is
flexible enough to evaluate the change via the value of output or employment from the source industry. (Additional details
related to this modeling approach are presented in Appendix B).
The Economic Impact of Proposed~EPABoiler/Process~
'llI Indirect Impact: The impact in those industries that suppiy the direct industries.
oifiI Induced Impact: The impact attributable to spending by employees of the direct and
indirect industries in the general economy.
8 Total Impact: The sum of the direct, indirect and induced impacts.
The resuits of the simulation for each scenario are presented in the following three sections.
...GUIBAl· The .Econo.mlc.JmpactQJ.Proposed.EPA Boiler/Process
iNSIGHT Institutional Boiler and Process Heater Operators
Results: Scenario 1
In Scenario 1, IHS Global Insight assessed the economic impact of the capital costs required to
upgrade boilers and process heaters to comply with the EPA proposed rule for all five pollutant
categories.
Using the boiler/process heater inventory database, the capital costs for the upgrades were·
determined to total $20.7B, distributed across 24 industry subsectors3 . The upgrade
expenditures were subtracted from the output of each subsector and used as inputs to the
IMPLAN model.
The results of the Scenario 1 analysis are summarized in the table below. Incurring the capital
costs of compiiance will put 338,000 jobs potentially at risk, of which nearly 70,000 are directly
tied to the affected industries/facilities. This does not mean that all of the "at risk" jobs will be
eliminated. Some larger organizations will absorb the costs with minimal changes to employment
levels; however they will likely pass both the compliance and on-going operating and
maintenance costs downstream to their customers or absorb a hit to their profitability and
therefore pass that cost along to their shareholders. Smaller or marginally-profitable firms, on the
other hand, may be faced with either reducing staff or shutting down operations.
Summary of Economic Impact of Scenario 1

: .. _~.~- DirecC-~ Indireci-·· - Induced· Total
>
~
Employment 69,934 157,824 109,944 337,702
Labor Income $3.68 $6.48 $5.28 $15.28
Value Added $4.48 $11.78 $9.18 $25.28
Output $20.78 $29.58 $17.28 $67.48
Taxes $5.78
As shown below, the 24 industry subsectors that will incur capital costs of $20.7B aggregate
under three industry supersectors: construction, manufacturing and natural resources (mining,
farming, etc). However, as shown in the charts on the following pages, the indirect and induced
impacts will be felt in other supersectors, such as professional services.
3 The relationship between IMPLAN industry sectors and NAICS categories is explained further in AppendiX B.
--.-.
INSIGHT
The -Economic-1m pact- of Proposed EPA-Boiler/Process
Industry Supersector Capital Costs

(millions of dollars)
Construction $3,718
Manufacturing $16,951
Natural Resources $65
Total $20,734
Impact on Employment by Industry Super-Sector, Scenario 1
Natural Resources t~~~~~:g~~~~~:;::::~;~=

Manu'facturlng
Professional Services
Wholesale & Retail
Lelsur. & Hospitality
Construction
===== • Direct
Financial Activities
o Indirect
IiiIlnduced
Transportation & Utilities
Misc.
.jl\!!!!!"""""'"
o 20,000 40,000 60,000 80,000
Jobs at Risk
--CHOBAIi The Economic~lmpaclof ProposedEI"A Boiler/l"rocess~
Impact on Labor Income by Industry Super-Sector, Scenario 1
Manufacturing
Wholesale & Retail
Construction -""""""""""""
-===
Natural Resources
• Direct

-1""""""''''''''''''''''''' o Indirect
iii Induced
Leisure & Hospitality
Other
1,000 2,000 3,000 4,000

Labor Income at Risk (millions of US dollars)
Source: Results generated by /HS Globa/lnsight from IMPLAN model
Impact on Value Added by Industry Super-Sector, Scenario 1
Manufacturing
Natural Resources
Wholesale & Retail
Transportation & Utilities • Direct
Construction o Indirect
iii Induced
Other
0,0 1.0 2.0 3.0 4.0 5.0 6.0

Lost Value Added (billions of US dollars)
Source: Results generated by IHS Global Insight from /MPLAN model
-GL.OBAL The Economic ImpactofProposed~EPA Boiler/Process ~
INSIGf-IT Institutional Boiler and Process Heater Operators
Impact on Output by Industry Super-Sector, Scenario 1
Manufacturing
Natural Resources
Construction
Wholesale & Retail • Direct

o Indirect
I!Ilnduced
Other
0.0 5.0 10.0 15.0 20.0 25.0 30.0

Source: Results generated by IHS G/obellnsight from IMPLAN model
In reviewing the summary tables shown above, the significance of the downstream effects
becomes clear. For a sector like Natural Resources, the direct effect of the regulations is
relatively smali, but the employment impact on this industry as a supplier to the Manufacturing
and Construction sectors is extremely significant. Additionally, the employment impact on the
professional services sector is also significant, but even more so is the labor income impact on
this sector, which highlights the fact that the jobs in this particular sector are high paying and high
value jobs which might not normaily come into focus when assessing the impact of standards
such as these.
_OBAL _The Economic Impactof F'roposedEI'A Boiler/Process __
Detailed Economic Impact of Scenario 1

: --- ~~- ~-- - -~----~ .- bfrecC'- - fndfiee-t Induced -- --Total - ,_c
"~
Jobs at Risk 69,934 157,824 109,944 337,702
Construction 24,879 1,683 1,075 27,637
Financial Activities 9,855 13,295 23,149
Professional Services 28,251 36,039 64,290
Leisure & Hospitality 7,889 23,554 31,443
Manufacturing 44,072 15,621 5,947 65,640
Natural Resources 983 72,291 2,835 76,109
Transportation & Utilities 11,005 4,275 15,280
Wholesale & Retail 10,343 21,963 32,306
Other 887 962 1,849
Labor Income (US$M) 3,599.7 6,427.7 5,157.4 15,184.8

construction 1,372.2 100.4 57.1 1,529.7
Financial Activities 551.5 827.1 1,378.6
Professional Services 1,964.7 1,955.0 3,919.7
Leisure & Hospitality 246.6 571.5 818.2
Manufacturing 2,221.8 1,090.9 446.7 3,759.3
Natural Resources 5.6 956.1 99.9 1,061.7
Transportation & Utilities 734.3 292.0 1,026.3
Wholesale & Retail 716.5 837.0 1,553.5
Other 66.7 71.1 137.7
Value Added (US$M) 4,425.0 11,579.6 9,124.6 25,129.2

Construction 1,458.6 106.2 69.7 1,634.5
Financial Activities 1,507.6 2,723.8 4,231.4
Leisure & Hospitality 371.1 821,4 1,192.5
Manufacturing 2,937.7 1,660.7 752.7 5,351.0
Natural Resources 28.7 2,726.8 247.4 3,003.0
Transportation & Utilities 1,327.2 533.1 1,860.3
Wholesale & Retail 1,227.6 1,400.3 2,627.8
other 79.0 79.6 158.6
Industry Output (US$M) 20,734.1 29,520.3 17,174.6 67,428.9

Construction 3,718.3 192.6 119.3 4,030.1
Leisure & Hospitality 666.8 1,618.5 2,285.3
Manufacturing 10,951.1 9,172.5 3,145.4 29,269.0
Other 243.7 233.4 477..1

uGlOBAL- TneEtonothic IthpatlofProposMEPA Boiler/Process-
Heater MACT Rule on Industriai, Commercial, and
Results: Scenario 2:
In Scenario 2, IHS Global Insight performed a simiiar assessment to that done in Scenario 1, but
narrowed the focus to analyze the impact of only the HCI standard costs. This was done to
provide a maximum potential impact assessment of the value of implementing a compliance
flexibility provision sllch as a health based alternative under CM §112(d)(4) instead of the
proposed HCI emission limits.
Using the boiler/process heater inventory database, the capital costs for the HCI controls were
determined to total $9.36, distributed across 24 industry subsectors" The controls expenditures
were subtracted from the output of each subsector and used as inputs to the IMPLAN model.
costs of compliance will over 152,000 jobs potentially at risk, of which over 31,000 are directly
tied to the affected industries/facilities. This does not mean that all of the "at risk" jobs will be
eliminated. Some larger organizations will absorb the costs with minimal changes to employment
levels; however tney will likely pass the both the compliance and on-going maintenance costs
downstream to their customers or absorb a hit to their profitability and therefore pass that cost
along to their shareholders. Smaller or marginally-profitable firms, on the other hand, may be
faced with either reducing staff or shutting down operations.

Dfrect --- ---IndirecC-----1i1di.iced -- -- Total-
,,
;-- u - - - -
,
Employment 31,639 71,246 49,668 152,552
Labor Income $1.68 $2.98 $2.38 $6.98
Value Added $2.08 $5.28 $4.18 $11.48
Output $9.38 $13.38 $7.88 $30,48
Taxes $2.68
As shown below, the 24 industry subsectors that will incur capital costs of $9.3B aggregate under
three industry supersectors: construction, manufacturing and natural resources. However, as
shown in the charts on the following pages, the indirect and induced impacts will be felt in other
supersectors, such as professional services.
4 The relationship between lMPLAN industry sectors and NAICS categories is explained further in Appendix B.
GUHiAL The Economic Impact of Proposed EPA Boiler/Process
HeaterMACTRuleonlndustrial,Commercial, and
·INSISI4r Institutional Boiier and Process Heater Operators

(millions of doliars)
Construction $1,727
Total $9,313
Impact on Employment by Industry Super-Sector, Scenario 2
Natural Resources
Manufacturing
Wholesale & Retail

-I::":==::
Construction • Direct
o Indirect
III Induced
-1""""""''''"
Other
o 20,000 30,000 40,000

Jobs at Risk
Heater MACTRule on Industrial,Commercial, and
Manufacturing
-I""""""""""""""""""~",,,
Construction
Wholesale & Retail

.1""""""""""'-
• Direct
-====
Natural Resources

o Indirect
-1"""""""""""" mJlnduced
other
o 500 1,000 1,500 2,000

Manufacturing
-r==:t::~~=
J."""""'''''''''''''''''I'''''''''''
Natural Resources
Wholesale & Retail
Construction o Indirect
111 Induced
other
0.0 0.5 1.0 1.5 2.0 2.5

SOl/rce: Results generated by IHS Globallnsighl from IMPLAN model
.. Heafer-MACT RuTe ollindusfiial, Commercial, and
Manufacturing
Professional. Services
Natural Resources
Construction
Wholesale & Retail • Direct

o Indirect
III Induced
other
0.0 5.0 10.0 15.0

Lost Output (billions of US dollars)
becomes clear. For a sector like Natural Resources, the direct effect of the regulations is
relatively small, but the employment impact on this industry as a supplier to the Manufacturing
professional services sector is also significant, but even more so is the labor income impact on
this sector, which highlights the fact that the jobs in this particular sector are high paying and high
value jobs which might not normally come into focus when assessing the impact of standards
such as these.
.....GIDUI.: The Ecor16micln'1p"dofProposedEPA Boiler/Process
INSIQ-iT Institutional Boiler and Process Heater Operators

-,-'~~"" ,- .... ~ -,~.. 'Direct~" Indirect-- Induced ." Total---
.$1
~
Jobs at Risk 31,639 71,246 49,668 152,553

Construction 11,564 754 486 12,804
Manufacturing 19,900 7,040 2,687 29,627
Natural Resources 174 32,663 1,281 34,118
Transportation & Utllitles 4,928 1,931 6,860
Other 399 435 833
Labor Income (US$M) 1,637.3 2,892.6 2,329.8 6,859.8

Construction 637.8 44.9 25.8 708,6
Financial Activities 249.0 373.6 622,7
Professional Services 888.9 883.2 1,772. 1
Leisure & Hospitality 111.6 258.2 369,8
Manufacturing 998,1 490.2 201.8 1,690.1
Natural Resources 1.3 428.7 45.1 475,2
Transportation & Utilities 328.5 131.9 460.4
Wholesale & Retail 320,8 378.1 698,9
Other 30,0 32.1 62.1
Value.Added (US$M) 1,992.3 5,239.8 4,125.7 11,357.8
Construction 677.6 47.5 31.5 756.7

Financial Activities 680.8 1,230.5 1,911,3
Professional Services 1,195.8 1,131.6 2,327,3
Leisure & Hospitality 168.0 371.1 539.0
Manufacturing 1,308.9 745.6 340.0 2,394.5
Transportation & Utilities 593.3 240.8 834,1
Wholesale & Retail 549.6 632,6 1,182.2
Other 35.4 36,0 71,4
Industry Output (US$M) 9,313.1 13,280.6 7,758.6 30,352.2

Construction 1,727,4 86.2 53.9 1,867.5
Professional Services .2,170.7 1,998.7 4,169.4
Leisure & Hospitality 301.8 731.2 1,032.9
Manufacturing 7,570.6 4,120.4 1,420.9 13,111.9
Transportation & Utilities 1,028,3 389.6 1,417.9
Wholesale & Retail 818,4 938.7 1,757.2
Other 109,4 105.4 214.8
Source: Results generated by IHS Globa/lnsight from IMPLAN model

- -IIKIIIUO. The Economic IrripacfofProposed EPA Boiler/Process
INSIGI-4T Institutional Boiler and Process Heater Operators
Results: Scenario 3
In Scenario 3, IHS Global Insight assessed the economic Impact should the EPA rules be
expanded to inciude emission limits for Gas 1 units for all five pollutant categories instead of the
work practice standard approach proposed.
Using the Gas I unit specific inventory database and the projected emission limits provided by
EPA in the proposed rule Preamble, the capital costs for the emissions controls were determined
5
to total $51.58, distributed across 26 industry subsectors . The upgrade expenditures were
subtracted from the output of each subsector and used as inputs to the IMPLAN model.
costs of compiiance will put almost 800,000 jobs potentially at risk, of which over 180,000 are
directly tied to the affected industries. This does not mean that all of the "at risk" jobs will be
eliminated. Some iarger organizations will absorb the costs with minimal changes to employment
levels; however they will likely. pass both the compliance and on-going operating and
maintenance costs downstream to their customers or absorb a hit to their profitability and
therefore pass that cost along to their shareholders. Smaller or marginally-profitable firms, on the
other hand, may be faced with either reducing staff or shutting down operations.

; .. - - _. -- ---'!:5Irect'-" .-, Indirect - Induced-- - - ~"TOtaf -
TI
,
Employment 181,099 341,800 275,351 798,250
Labor Income $8.58 $16.68 $12.98 $38.08
Value Added $11.18 $29.38 $22.98 $63.38
Output $51.58 $77.98 $43.08 $172.58
Taxes $14.38
As shown below, the 26 industry subsectors that will incur capital costs of $51.48 aggregate
under three industry supersectors: construction, manufacturing and natural resources. In this
scenario, the manufacturing subsector will incur approximately 96% of the upgrade cost.
However, as shown in the charts on the. following pages, the indirect and induced impacts will be
felt in other supersectors, such as professional services.
5 The relationship between IMPLAN industry sectors and NAICS categories Is explained further in Appendix B.
_..GI.D8AL The Economic Impact ofPropos"dEPA Boiler/Process
II'JSIGHT Institutional Boiler and Process Heater Operators

(miilions of dollars)
Construction $2,571
Total $51,540
Impact on Employment by Industry Super.Sector, Scenario 3
Manufacturing
Natural Resources
Wholesale & Retail
Financial Activities • Direct

Dlndiroct
00 Induced
Construction
other
o 50,000 100,000 150,000 250,000

Jobs at Risk
Source: Resu/ts generated by IHS G/oba/lnsight from IMPLAN model
GLOBAL The Economic Impact of Proposed EPA Boiler/Process
Heater·MACT Ruleonlndustrial,Commercial, and
·INSIGI4T Institutional Boiler and Process Heater Operators
Manufacturlna
Wholesale & Retail
Natural Resources

o Indirect
rnlnduced
Construction
other
o 2,000 4,000 6,000 8,000 10,000 12,000

Manufacturing
Natural Resources
Wholesale & Retail

.P""""""'''''''' • Direct
Leisure & Hospitality o Indirect

iii Induced
Construction
other
0.0 U lU 1U 20.0
Lost Vlaue Added (billions of US dollars)
····CBGBAL The Economic Impact ofProposed· EPA Boiler/Process
Manufacturing
Natural Resources
Wholesale & Retail
Le,lsure & Hospitality

D Indirect
IilIlnduced
Construction
Other
0.0 20.0 40.0 60.0 80.0 100.0

Lost Output (billions of US dollars)
becomes clear. For a sector like Natural Resources, there is only a small amount of direct effect
on the industry, but the employment impact on this industry as a supplier to the Manufacturing
professional services sector is also significant, as is the labor income impact on this sector, which
highlights the fact that the jobs in this particular sector are high paying and high value jobs which
might not normally come into focus when assessing the impact of standards such as these.
The Economiclmpacl a/Proposed-EPA Boiler/Process

'1- -- ---, - ---- -.- -- -Olia6C Tndirect - --Induced--- - r-olaf --
""
'{{f,
Jobs at Risk 181,099 341,801 275,351 798,250

Construction 16,638 4,611 2,692 23,941
Manufacturing 164,424 41,776 14,896 221,097
Natural Resqurces 37 130,142 7,102 137,281
Transportation & Utilities 29,329 10,707 40,036
Other 2,352 2,409 4,761
Labor Income (US$M) 8,470.5 16,641.3 12,916.9 38,028.7

Construction 918.9 275.2 143.1 1,337.2
Leisure & Hospitality 570.8 1,431.2 2,002.0
Manufacturing 7,551.3 2,879.0 1,118.8 11,549.0
Other 177.0 178.0 355.0
Value Added (US$M) 11,103.0 29,307.0 22,873.3 63,283.3

Construction 1,007.1 290.9 174.5 1,472.5
Leisure & Hospital1ty 847.3 2,057.0 2,904.2
Manufacturing 10,094.6 4,415.1 1,885.3 16,395.0
Natural Resources 1.3 . 6,807.4 619.8 7,428.6
Transportation & Utilities 3,690.5 1,335.2 5,025.6
Other 213.6 199.4 412.9
Output (US$M) 51,540.6 77,946.6 43,015.0 172,502.1

Construction 2,570.5 527.7 298.7 3,396.8
Professional SelVices 12,060.5 11,081.6 23,142.1
Leisure & Hospitality 1,530.7 4,053.1 5,583.9
Manufacturing 48,966.2 25,745.9 7,878.8 82,590.9
Natural Resources 3.8 21,385.4 1,278.5 22,667.8
Transportation & Utilities 6,405.0 2,160.0 8,565.1
Other 659.4 584.7 1,244.1

.......
INSIGHT
Appendix A: How the MACT Costs were Calculated

Because of the anticipated major financial impact of this rule on the Industrial Commercial and
Institutional (ICI) sectors of the country, the Council of Industrial Boiler Owners (CIBO)
commissioned URS Corporation to work with our members to estimate the capital costs for
installation of additional control technologies on existing boilers. The approach used by CIBO and
URS (CIBO/URS) to estimate capital costs differed from EPA's in several respects, as described
below.
We developed a detaiied spreadsheet to estimate costs for Boiler MACT, based on EPA's major
source boiler inventory database table. Based on the information in the EPA emissions database
on boiler size, fuel, existing controls, and emissions, we estimated costs of controls that would
likely be necessary to comply with the Boiler MACT for coal, biomass, liquid, and gas 2 boilers for
those units 10 MMBtu/hr and greater. Because the proposed rule does not include emission
limits for natural gas boilers, these units were considered in a separate cost analysis assuming
the work practice standards would not be allowed and the proposed Gas 1 limits in the preamble
would be applied, requiring application of control technology to these boilers and process heaters
for all regulated pollutants.
Information from various sources was used to determine a base capital cost for a 250 MMBtu/hr
boiler and process heater for each PM and HCr control technology option and then scaled using
an 0.6 power function based on the size of each boiler and process heater in the inventory. For
example, the capital cost of a scrubber on a 100 MMBtu/hr boiler is calculated as the base cost of
$8 million times CI00/250)O.6. A fixed capital cost of $1 million was assumed for installation of a
carbon adsorption system for Hg and/or dioxin control, as these systems do not vary much in cost
by boiler size. A fixed capital cost of $2 million was assumed for CO controls (either projects to
improve combustion or fuel feed or installation of a CO catalyst). Base cost estimates represent
median costs for the various control scenarios based on published reports, industry and vendor
information on specific project costs, EPA reports or control device fact sheets, or actual BACT or
BART analyses previously submitted to permitting agencies.
To estimate capital costs for each boiler and process heater, we assumed that if there was no
emissions information available for a particular unit, the unit would likely need MACT, which EPA
. stated in the preamble to the proposed Boiler MACT is a fabric filter (FF) plus carbon injection
plus wet scrubber plus combustion improvements (or CO catalyst). For PM, if a unit did not
already have a FF or ESP and there was information that indicated the unit cannot meet the
proposed limit or there was no emissions information, we assumed a new FF. If the unit already
had a FF or ESP and there was information that indicated the unit cannot meet the proposed limit
we assumed an upgrade to the existing control equipment. To estimate control costs for HCI, if
there was information that indicated the unit cannot meet the proposed limit or if there was no
emissions information, we assumed either a scrubber upgrade or new scrubber depending on
whether the unit currently had a scrubber. For Hg and dioxin, if there was information that
indicated the unit cannot meet the proposed limit or if there was no emissions information, we
The Economic Impact of Proposed l::pA Boiler/Process
added carbon injection. For CO, if there was information that indicated the unit cannot meet the
proposed limit and is not a fluidized bed boiler, stoker boiler, suspension boiler, or dutch oven,.
then we assumed that capital would be necessary to either perform combustion and/or fuel feed
improvements or other boiler/proce~s heater improvement projects to reduce CO or install a CO
catalyst.
Although EPA's estimates indicate that the total capital cost of the proposed rule will be $9.5
billion, CIBO and URS have estimated that the total capital cost of the rule will be over $20 billion
for all affected sources for installation of emissions controls on coal, biomass, liquid, and gas 2
boilers and process heaters. It is evident major capital investments in add-on control technology
will be required for continued operation of the ICI power house and energy base of the country.
Our capital cost estimates differ from EPA's cost estimates as follows:
.jii EPA has used the outdated Control Cost Manual and we have based our cost estimates
on more recent information, including actual vendor cost estimates, actual project costs,
BACT and BART analyses, industry control cost studies, etc.
il We used a CO catalyst cost 4 times higher than EPA's. The CIBO/URS estimate is based
on a recent quote from BASF and EPA's is based on the 1998 Control Cost Manual
section on catalytic oxidizers for VOC control.
oft EPA has estimated that a tuneup or burner replacement will be adequate for many units to
achieve the CO limits. We do not agree with this assumption and have estimated higher
costs to implement combustion controls, fuel feed system improvements, or CO catalyst.
'!JI Our estimated CO control capital costs are $1.2 billion for liquid and gas 2 and $1.5 billion
for coal and biomass, where EPA's total estimate for CO control capital costs is only $13.9
million, mostly because they have assumed that tune-ups and replacement burners will be
adequate for the vast majority of boilers to comply.
.jrj EPA has estimated that activated carbon injection will only be required on 155 existing
boilers because installation of a fabric filter is expected to achieve the mercury emission
limits, except in cases where a unit already has a fabric filter and does not meet the limits.
We do not agree that fabric filters will be sufficient to reduce mercury emissions to the ultra
low levels proposed in this rule. There is a flaw in the logic that fabric filters are expected
to achieve mercury emission limits when there are many boilers in the database that are
equ'lpped with fabric filters and have measured mercury emissions higher than the
proposed limits. EPA's estimated industry-wide capital cost for activated carbon injection
presented in Table 2 of the cost and emissions impacts memo is extremely low, at only
$9.5 million. We do not understand how this can represent 155 boilers; it seems to us to
represent the cost 10 boilers would incur to install a carbon injection system. Our estimate
for carbon injection required for mercury and dioxin/furan control is $1.7 billion.
oIlI EPA estimated that an ESP would be installed to meet the PM emissions limit unless a unit
already had a fabric filter installed. We believe that since sorbent injection will be required
for acid gas, mercury, and dioxin control, that fabric filters will likely be chosen for units
without existing ESPs in order to maximize the performance of the sorbents and minimize
the amount of sorbent used. For example, use of an ESP will require 4 times the carbon
Heater MACTRuIe on Industrial, Commercial, and
to be injected for mercury/dioxin control than if a fabric filter is used. The capital cost for a
fabric filter is higher than the capital cost for an ESP on the same boiler.
fi CIBO/URS has estimated a PM control cost for coal, liquid, and gas 2 boilers and process
heaters of $7 billion versus EPA's estimated PM control cost of $6.1 billion.
oilI EPA has estimated costs to install packed bed scrubbers for HCI control. Industrial boilers
do not use packed bed scrubbers for acid gas control, as the limitations of these devices
make them impractical for use on applications with high flow rates, high PM loadIng, and
high inlet pollutant concentration. EPA's own fact sheet on these devices, located at
http://www.epa.gov/ttn/catc/dir1/fpack.pdf, lists these limitations of these devices and
indicates that they are only used in applications up to 75,000 scfm, which limits their use to
small units only. Facilities will instead install wet scrubbers, dry scrubbers, or semi-dry
scrubbers to control acid gas emissions from industrial boilers. EPA has estimated HCI
control costs for equipment that industry is not likely to install.
'0 CIBO/URS has estimated capital costs for coal, liquid, and gas 2 boilers and process
heaters for HCI control of $9.3 billion, while EPA's capital cost estimate for wet scrubbers
is $3.3 billion.
oilI EPA presents several cost options in the two ERG memos. Option 2E assumes that
facilities will not incur costs to comply with the dioxin/furan standards because they will test
for dioxin/furan and be below detection levels. This logic does not make sense, especially
because EPA has not outlined in the rule any procedures for handling non-detects when
performing compliance testing and there are boilers in the EPA emissions database with
dioxin/furan emissions that are non-detect but actually measured emissions higher than
the proposed limit. CIBO/URS has estimated carbon injection as the control measure for
d'lox'ln/furan emissions and mercury emissions. As stated above, our cost estimate for
carbon injection for coal, liquid, and gas 2 boilers and process heaters is $1.7 billion
versus EPA's of only $9.5million.
Capital Cost Estimates for MACT Compliance

w~- ~-- -~--~~ - ~~~." ---~- - ~~~'T - ---~- ~ -~-~ -.- --- --- - - -
5Uem EPA Capital Cost CIB0IURS Capital Cost

"~'~r~~'
CO Controls $13.9 million $2.7 billion
Carbon Injection for Hg and DfF $9.5 million $1.7 billion
PM Controls $6.1 billion $7.0 billion
HCI Controls $3.3 billion $9.3 billion
In the event Work Practice Standards for Natural Gas fired boilers and process heaters are
replaced with the numerical standards proposed in the preamble for Gas 1 boilers, the following
costs were estimated using the same assumptions as above. We have assumed that gas 1
boilers and process heaters will apply the following technology: FF (for PM), carbon injection (for
. Hg and D/F), wet scrubber (for HCI), and CO catalyst.
····GlOBAL The Economic Impact of Proposed EPA BoilerlProcess
Capital Cost Estimates for MACT Compliance

;~It~m-~-- - -- - .. _. EPA-C~PitaTcostfod3as·-~BO~~~;~a ital Cost'
;t;, 1 BOilers >10 MMBtu P
CO Controls $3.5 million $5.8 billion
Carbon Injection for Hg and OfF $32 million $2.9 billion
PM Controls $11.5 billion $19.6 billion
HC) Controls $3.1 billion $23.2 billion
The above estimates could be considered conservative since they assume that emission controls
can be installed on existing units and that controls will actually allow compliance with the
proposed emission limits. These are very conservative assumptions since it is known that retrofit
of emissions control devices such as these is extremely difficult for some units due to design and
space limitations, and major issues with the floor setting methodology make achievability of the
emission limits highly uncertain. Therefore, it is likely that some combustion units will need to be
replaced rather than retrofitting controls to those existing units. Replacement of combustion units
could escalate these costs significantly.
"AI.
··INSIGFfr·
Heater MACr Rule on Industrial, Commercial, and
Appendix B: The IMPLAN Model

IMPLAN, short for "Impact Analysis for Planning," is a widely used commercially available model
for input/output analysis. Minnesota IMPLAN Group, Inc., is responsible for the production of the
IMPLAN data, model, and software. Using classic input/output analysis in combination with
region-specific social accounting matrices and multiplier models, IMPLAN provides a highly
accurate and adaptable model for its users'. The IMPLAN database contains country, state, zip
code, and federal economic statistics, which are specialized by region. IMPLAN accounts closely
follow the accounting conventions used in the :'Input-Output Study of the U.S. Economy" by the
BEA and the rectangular format recommended by the United Nations. The IMPLAN system was
designed to serve three functions:
1) Data retrieval,
2)· Data reduction, model development, and
3) Impact analysis
Comprehensive and detailed data coverage of the entire United States by geography, and the
ability to incorporate user-supplied data at each stage of the model-building process, provides a
high degree of flexibility both in terms of geographic coverage and model formulation. There are
two components to the IMPLAN system, the software and databases. The databases provide all
information to create regional IMPLAN models. The software performs the calculations and
provides an interface for the user to make final-demand changes.
The IMPLAN system consists of two major parts:
1) A national-level technology matrix and

2) Estimates of sectoral activity for final demand, final payments, industry output,
and employment for each detailed geography in the United States along with the
aggregate region.
Input-output accounting describes commodity flows from producers to intermediate and final
consumers. The total industry purchases of commodities, services, employment compensation,
value added, and imports are equal to the value of the commodities produced.
Purchases for final use (final demand) drive the model. Industries produce goods and services for
final demand and purchase goods and services from other producers. These other producers, in
turn, purchase goods and services. This buying of goods and services (indirect purchases)
continues until leakages from "the region (imports and value added) stop the cycle.
These indirect and induced effects (the effects of household spending) can be mathematically
derived. The derivation is called the Leontief inverse. The resulting sets of multipliers describe the
change of output for each and every regional industry caused by a one dollar change in final
demand for any given industry.
--~ the Econom[cfmpacfofproposedEPA Boifer/Process
INSIGI-IT Institutional Boiler and Process Heater Operators
Creating regional input-output models requires a tremendous amount of data. The costs of
surveying industries within each region to derive a list of commodity purchases production
functions) are prohibitive. IMPLAN was developed as a cost-effective means to develop regional
input-output models.
IMPLAN easily allows the user to do the following:
fi Develop his/her own multiplier tables;

!.'!I' Develop a complete set of SAM (Social Accounting Matrix) accounts;
!ll' Change any component of the system, production functions, trade flows, or
database;
till Generate type I, II, or any true SAM multiplier internalizing household,
government, and/or investment activities
,jij, Create custom impact analysis by entering final-demand changes;
e Obtain any report in the system to examine the model's assumptions and
calculations.
There are two components to the IMPLAN system, the software and databases. The databases
provide all information to create regionallMPLAN models. The software performs the calculations
and provides an interface for the user to make final-demand changes.
IMPlAN SOFTWARE
Minnesota IMPLAN Group developed the current version of IMPLAN Professional® version 3.0 in
2009. It is a Windows-based software package that performs the calculations necessary to create
the predictive model. The software reads the database, creates the complete set of social
accounting matrices (SAM), the I/O accounts, and integrates all user-defined inputs to produce an
alternative scenario.
The IMPLAN Input/Output System derives the predictive multipliers. The software also enables
the user to make changes to the data, the trade flows, or technology. It also enables the user to
make final-demand changes, which results in the impact assessment.
Features of IMPLAN Professional® include:
1) Windows file and printer management;

2) Economic database editor;
3) Complete Social Accounting Matrix structure;
4) A choice of trade-flow assumptions: Supply-Demand Pooling; Regional Purchase'
Coefficients; Location
5) quotients;
6) Production function editor, i.e., the tools and opportunity necessary to modify the
l'absorption"
7) and "byproducts" matrices;
.........
INSIGHr
The Economic Impai::tofProposedEPA Boiler/Process
8) Libraries for production functions and impact analysis expenditures;

9) Flexible model aggregation tools;
10) Report generator; many preset reports for all stages of model building and analysis;
11) Export feature to many of the major PC file formats;
12) Flexible assumptions for induced effects;
13) Type SAM - true SAM multipliers which allow internalizing any number of institutions;
a. Type II - Based on PCE and SAM based local income relationship;
b. Type II - Based on user-specified disposable income rate;
c. Type III (CPMM) - Traditional Forest Service employment based multipliers;
14) Menu structure for easy impact analysis;
15) Event-based impact databases;
16) Built-in and editable transaction margins;
17) Built-in and editable deflators;
18) Technical support by MIG, Inc.;
19) Data in Access Database format.
DATABASE
Each database has information for these components for all 440 industrial sectors in the IMPLAN
model. This 440-sector scheme was revised in 2007 and was originally the basis for the Bureau
of Economic Analysis's Benchmark Input-Output Study. This scheme is nearly 6 digit NAICS for
manufacturing, and more aggregate for service sectors. By necessity IMPLAN's sectoring is very
similar. However, in some cases, 6 digit NArCS code data has been aggregated for certain
IMPLANsectors. A full NAICS to IMPLAN mapping document can be downloaded from
www.implan.com.
Employment is total wage and salary and seif-employed jobs in a region. In the 1985 database,
employment was measured as full-time equivalent jobs. This meant that total employment in a
region would generally be below most published estimates because these are generally full-time
and parttime. In the 1990 and subsequent databases, employment includes both full-time and
part-time workers. Employment in the 1990 and subsequent databases are measured in total
jobs.
There are four sub-components for value added:
1) Employee Compensation;
2) Proprietary Income;
3) Other Property Type Income;
4) Indirect Business Taxes;
Employee compensation is wage and salary payments as well as benefits, including health and
life insurance, retirement payments, and any other non-cash compensation. This provides a
measure of income to workers who are paid by employers.
~GIiOBAIi - The Economic Impact of Proposed EPA Boiler/Process
INSIGI-lT Institutional Boiler and Process Heater Operators
Proprietary income consists of payments received by self-employed individuals as income. This

would be recorded on Federal Tax Form 1040C. This includes income received by private
business owners, doctors, lawyers, and so forth. Any income a person receives for payment of
self-empioyed work is counted here.
Other property-type income consists of payments from rents royalties and dividends. This
includes payments to individuals in the form of rents received on property, royalties from contract,
and dividends paid by corporations. This also includes corporate profits earned by corporations.
Indirect business taxes consist primarily of excise and sales taxes paid by individuals to
businesses. These taxes are collected during the normal operation of these businesses but do
not include taxes on profit or income. Goods and services purchased for their ultimate use by an
end user are called final demands.'For a region, this would include exports as that is a final use
for that product. In an input-output framework, final demands are allocated to producing industries
with margins allocated to the service sectors (transportation, wholesale and retail trade,
insurance) associated with providing that good to the final user.
Thus, final demands are in producer prices. There are 13 subcomponents for final demands:
1) Personal Consumption Expenditures (PC E)-nine income levels;

2) Federal Government Military Purchases;
3} Federal Government Nonmilitary Purchases;
4} Federal Government Capital Formation Purchases;
5} State and Local Government Non-Education Purchases;
6) State and Local Government Education Purchases;
7) State and Local Government Capital Formation Purchases;
8} Inventory Purchases;
9) Capital Formation;
10} Foreign Exports;
11} State and Local Government Sales;
12} Federal Government Sales;
13) Inventory Sales.
All final demands in the originai data are on a commodity basis. The distinction between
industries and commodities is as follows from the 1972 1-0 Definitions and Conventions Manual:
~ An input-output industry is a grouping of establishments, as classified by Standard

Industrial Classification (SIC)';
6 The IMPLAN sector scheme is now currently based on NAICS definitions and is revised as necessary after each 5-year
Economic Census is released.
-GlOBAL- "The EC9Dorni"JIl1Pgc(of F'ropose_d lOPA aoil"rLPrOC6SS
~ An input-output commodity consists of the characteristic products of the corresponding

1-0 industry wherever made. There are several industries that have no commodities.
This is a result of departures from the strict SIC of industries. Also, some commodities
have no associated industry. An example of this is noncomparable imports.
PCE consists of payments by individuals/households to industries for goods and services used
for personal consumption. Individuals tend to buy little directly from industries other than retail
trade. In an input-output tabie, though, purchases made by individuals for final consumption are
shown as payments made directly to the industry producing the good. PCE is the largest
component of final demand.
Federal government purchases are divided between military and nonmilitary uses and capital
formation. Federal military purchases are those made to support the national defense. Goods
range from food for troops to missile launchers. Nonmilitary purchases are made to supply all
other government functions. Payments made to other governmental units are transfers and are
not included in federal government purchases.
State and local government purchases are divided between public education and non-education
and capital formation. Public education purchases are for elementary, high school, and higher
education. Non-education purcha"ses are for all other government activities. These include state
government operations, operations including police protection and sanitation. Private-sector
education purchases are not counted here. Private education purchases show up in IMPLAN
sectors 495 and 496.
Inventory purchases are made when industries do not .sell all output created in one year. This is
generally the case. Each year, a portion of output goes to inventory. Inventory sales occur when
industries sell more than they produce and need to deplete inventory. Inventory purchases and
sales generally involve goods-producing industries (e.g., agriculture, mining, and manufacturing).
Capital formation is private expenditures made to obtain capital equipment. The dollar values in
the IMPLAN database are expenditures made to an industrial sector producing the capital
equipment. The values are not expenditures by the industrial sector.
Foreign exports are demands made to industries for goods for export beyond national borders.
These represent goods and services demanded by foreign parties. Domestic exports are
calculated during the IMPLAN model creation and are not part of the database.
The national transactions matrix is based on the most current BEA National Benchmark Input-
Output Model. It is re-sectored to IMPLAN industrial sectoring. We use our IMPLAN data for the
current year to update the most recent National Benchmark study.
The ECQnQmic~mpactQfProp9sedEPA Boiler/Pmcess
IMPlAN MULTIPLIERS
The notion of a multiplier rests upon the difference between the initial effect of a change in final
demand and the total effects of that change. Total effects can be calculated either as direct and
indirect effects, or as direct, indirect, and induced effects. Direct effects are production changes
associated with the immediate effects or final-demand changes. Indirect effects are production
changes in backward- linked industries caused by the changing input needs of directly affected
industries (for example, additional purchases to produce additional output). Induced effects are
the changes in regional household spending patterns caused by changes in household income
generated from the direct and indirect effe,cts. '
Five different sets of multipliers are estimated by IMPLAN corresponding to five measures of
regional economic activity: total industry output, personal income, total income, value added, and
employment. For each set of multipliers, four types of multipliers are generated, Type I, Type II,
Type SAM, and Type III.
Type I Multiplier
A Type I multiplier is the direct effect, produced by a change in final demand, plus the indirect
effect divided by the direct effect. Increased demands are assumed to lead to increased
employment and population with the average income level remaining constant. The Leontief
inverse (Type I multipliers matrix) is derived by inverting the direct coefficients matrix. The result
is a matrix of total requirement coefficients, the amount each industry must produce for the
purchasing industry to deliver one dollar's worth of output to final demand.
Type II Multipliers
Type II multipliers incorporate "induced" effects resulting from the household expenditures from
new labor income. The linear relationship between labor income and household expenditure can
be customized in the IMPLAN Professional® software: 1. The default relationship is PCE and
total household expenditures. Each dollar of workplace-based income is spent based on the SAM
relationship generated by IMPLAN. 2. The second possibility is a RIMS II style of Type II
multiplier, where PCE is adjusted to represent only the spending of the d',sposable income portion
of labor income. In this way, there is a direct one-to-one relationship to labor income and PCE.
Then, a ratio which the user can specify is applied to convert total income to disposable income
before the rounds of induced effects are calculated.
Type SAM
Type SAM multipliers are the direct, indirect, and induced effects where the induced effect is
based on information in the social account matrix. This relationship accounts for social security
and income tax leakage, institution savings, and commuting. It also accounts for inter-institutional
transfers. This multiplier is flexible in that you can include any institutions you want. In other
The Economic Impact-of Proposed EPA- Boiler/Process
words, if you want to create a model closed to households and state and local government, you
can. If you select this option, an additional dialog box with be displayed allowing you to seleel the
institutions you want to include.
Output Multipliers
This report shows the total industry output multipliers and per-capita personal consumption
expenditures. Output multipliers can be used to gauge the interdependence of sectors; the larger
the output multiplier, the greater the interdependence of the seelor on the rest of the regional
economy. A Type I entry represents the value of production (from direct and indirect effects)
required from all sectors by a particular seelor to deliver one dollar's worth of output. Type II,
SAM, and III adds in the induced requirements.
. Example: If a Type I multiplier for the dairy farm industry is 1.0943, for each dollar of output
produced by the dairy farm seelor, 0.0943 dollars' worth of indirect output is generated in other
local industries. If the Type SAM Dairy Farm multiplier is 1.3140, 0.3140 dollars of indirect and
induced output is generated in other local industries. The induced output would be 1.3140 minus
1.0943 or 0.2197 dollars for each dollar of output produced by the dairy farm seelor.
Labor Income Multipliers
The labor income multiplier report shows the. direel, indireel, and induced employee
compensation plus proprietor income effeels generated per dollar of output. The Type I personal
income mUltiplier is the direel and indireel employee compensation plus proprietor income divided
by the direct income. The Type II, Type SAM, and Type III multiplier adds the induced effects
component.
Example: If the Type I multiplier for the dairy farm seelor is 1.4761 and the Type SAM multiplier is
2.7067, then for each dollar of direct income generated by this industry, 0.4761 dollars of indireel
and 1.2306 dollars of induced income are generated.
Employee Compensation Multipliers

Employee compensation represents all payroll costs of wage and salary workers. The Type I,
Type SAM, Type II, or Type III total income multipliers are listed in this report along with the
direel, indirect, ana induced total income effeels generated from the production of one dollar's
output.
Proprietor Income Multiplier
Proprietor income is the income earned by the owners of a private-non-incorporated business-

i.e., the self-employed. The Type I, Type SAM, Type II, or Type III total income multipliers are
_.GU:I8B The Economic Impact of Proposed EPA Boiler/Process
Heater MACT Rule on Industrial, Commercial, .and
INSIGI-fr Institutional Boiler and Process Heater Operators
listed in this report along with the direct, indirect, and induced total income effects generated from
the production of one dollar's output.
Other Property- Type Income
Other property-type income represents corporate income, rental income, and interest. The Type I
and Type IIlType SAM/Type III total income multipliers are listed in this report along with the
direct, indirect, and induced total income effects generated from the production of one dollar's
output.
Value-Added Multipliers
Type I and Type IIlType SAMlType III value-added multipliers are listed in this report along with
the direct, indirect, and induced value-added effects generated from the production of one dollar
of output. Value-added includes employee compensation, proprietary income, other property-type
income, and indirect business taxes.
Employment Multipliers
Type I and Type IIlType SAM/Type III empioyment multipliers are listed in this report along with
the direct, indirect, and induced employment effects from the production of one miilion dollars of
output. Employment is in terms of full-time and part-time jobs.
Example: if a dairy farm Type I employment multiplier is 1.1158, for each job created directly by
the dairy farm industry, 0.1158 jobs are created indirectly.
db.
FOR IMMEDIATE RELEASE September 14, 2010
Contact: Frank Maisano (202-828-5864)
frank.maisano@bglll'.com
CIBO Urges EPA To Save Jobs In Final MACT Rules
Burke, VA - A new economic impact study by IRS Global Insight says new, strict proposed
Environmental Protection Agency (EPA) pollution rules for boilers and process heaters could put
more than 300,000 jobs at risk and significantly impact the broader economy. The study is
intended to help EPA minimize the economic impacts in finalizing the regulation.
The study, which was released by the Council of Industrial Boiler Owners (ClBO) today, analyzed
three different compliance scenarios that could result depending upon how EPA finalizes its
proposed Boiler MACT rule for Industrial, Commercial, and Institutional (ICI)boilers and process
heaters. Across all three scenarios, the study found that every $1 billion spent on upgrade and
compliance costs could put 16,000 jobs at risk and reduce the US GDP by as much as $1.2 billion.
EPA's proposed rule would impose new regulations and new monitoring requirements for 11
subcategories of boilers and process heaters based on fuel type and unit design, with the intention
of substantially reducing hazardous air pollutant (HAP) emissions from those units. In many
cases, these new standards would require the installation of expensive control technologies without
sufficient assurance that proposed emission limits would routinely be achieved. The often large
capital costs needed to retrofit many current plants could prove economically difficult for many
existing units and could lead to closure of some operations.
In addition to the significant potential impact on the ICI sectors that operate boilers and process
heaters, the report outlines far-reaching consequences on the economy. Projected impacts vary
based on the scenario being evaluated. For example, the rule as proposed could put 338,000 jobs
at risk (at regulated facilities, their suppliers, and broader effects of the loss of direct and indirect
spending). Of those jobs that could be at risk, 153,000 of them could be avoided if EPA were to
use a health-based approach for regulating inorganic HAPS, which would result in roughly
equivalent environmental benefit. EPA has sensibly proposed to use a work practice standard for
natural gas-fired units. For these natural gas units, if EPA instead decides to apply technology
based emissions limits as discussed in the proposed rule, an additional 798,000 jobs could be put at
risk.
"ClBO believes a cost-effective and environmentally-protective regulation is possible within the

existing framework if EPA finalizes this mle carefully and addresses the critical issues identified
in comments submitted by owners of units that must comply with the rule," said Robert Bessette,
President of ClBO. "This study offers an eye-opening look at the economic damage that could be
caused if EPA moves forward with this Boiler MACT mle without substantial modifications. The
study makes clear that it is important for EPA to take great care in finalizing this lUle to a~oid
significant consequences for many boiler and process heater owners, the communities surrounding
affected facilities and the broader economy."
While some larger entities will be able to absorb the costs of the lUle with minimal changes to
employment levels, they would pass on the costs to their customers. The largest impact would be
'on smaller or less profitable fInns, which could be forced to make the largest staff reductions or
even shut down.
###
CIRO is a broad-based trade association of industrial boiler owners, architect-engineers,

universities & related equipment manufacturers representing 20 major industrial sectors. CIRO
actively promotes energy and environmental equipment, technology, operations & policies and
laws & regulations affecting industrial energy facilities.
IHS Global Insight is widely recognized as the most consistently accurate economic forecasting
firm in the world. With over 600 economists, statisticians, and industry specialists in 25 offices
worldwide, IHS Global Insight has a well-established track record for providing rigorous,
objective forecast analysis and data to governments and businesses around the world.
The study may be accessed at: www.cibo.org
For information, please contact Robert D. Bessette,

President, Council Of Industrial Boiler Owners
bessette@cibo.org
703-250-9042
January 6, 2011

Chairman
COlIstl'lIctioll Committee on Oversight and Government Reform
IlIdllStl'Y 2157 Rayburn House Office Building
Itmuul Washington, DC 20515-6143
'table
Dear Chairman Issa:
BOARD OF DIRECTORS
On behalfof the Construction Industry Round Tabie (CIRT)', we wish to
CbfllrmRll,· Linc/il Figg thank you for requesting the Round Tabie's participation in the critically
PJcsi~~"1 & CEO, figg Engineerhlg Group important effort to identify existing and proposed regUlations that have or
Vice Cllnil'lIlDn, Robert E. Alger may negatively impact job growth in our industry.
CEO & President;Tlle Lane Conslruction Corp.
l'l'cflslirer, Patrick MacLeal/JJ' "Time is money" both axiomatic and true in the design and construction
ena, HOK Group, Tne. industry - which remains heavily labor intensive to this day. So, if
I'RS! Chnll'lllHII, Mauhew M. Wafsh something takes more time it cost jobs ... thus, regulatory delays,
CEO, The Walsh Group redundancies, inefficiencies, and red tape collectively have a direct impact
Joseph lY[.' Cf/wr
on costs and therefore the vitality and ability of our industry to remain
Pl'csidenl;.Fugro Consultants,lnc. profitable and hire more peopie.
RicherI'd D,·Fox
President. COM
Even the American public has come to this conclusion, with an
Will/twi B. F'mm'
CEO, Carlson Group, 1m:. overwhelming 81 percent agreeing that the government "needs a basic
TIloma.~ P. GJlballe. Jr, overhaul" and should undertake "an annual 'spring cleaning' to eliminate
ChllirmM & CEO, Gilbane lluilding Company unnecessary regulations and red tape." according to a recent Clarus
, Charles L. Greco Research Group poll (Dec. 2010).
Presklcnl & CEO, LINBECK
Donald l( Greellwood
President, Bums & McDonnell ConSIOlction
Design and Construction Community
Brl/ce E. Grell'cock The design/construction community's "can-do-spirit" and "know-how" still
President & CEO, Peter Kiewit Sons', Inc. exists, it's just hard find under the mountains of laws, regulations, and rules
Cm;g L. Mal'lill that we insist on heaping onto our private sector job creators and then
President. Jacobs Engineering Group expect them to spur economic growth-and employment. Not only is the
A. Ross A{l'el's existing mass burdensome (which one might call "the regulatory complex"),
President, American Infinstructure. hie. the uncertainty and unintended consequences of what appears to be a
Pi:lIricia A. Rodgers never ending expansion of government's reach has also done severe
, President, RodgeIS Builders damage to the entrepreneurial spirit and risk taking - both necessary to
Hml Wf!IldOlf jump start a robust recovery.
"Olllirnlnn & CEO, SlIrgent & Lundy LLC
Doug/as E. Woods
Prilsidcilt, DPR Coilstmclion.lnc.
1 The Construction Industry Round Table (CfRT) strives to crea-te one voice to meet the interest
and needs of the design and construction community. CIRT supports its members by actively
representing the industry on public polley issues, by improving the image and pl'fJsence of its
leading members, and by proViding a forum for enhancing and/or developing strong .
management approaches in an ever changing environment through netwoffling and peer
interaction,
MarTi-A. l.'f18,~(J. EMI.
['l'f1sident The Round Table is composed of approximately 100 CEOs from the leading architectural,
engineering, and construction firms in the United States. Together thesa firms deliver on
bfllions of dollars of public and private sector infrastructure projects that enhance the quality of
11115 Old Dllminiutl Dr., Sllile 210

a"
fife of Americans while directly employing half-million Americans.
Mrl.ellll,Vt\ 22]02.2325
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.-
CIRT Letter on Excessive Regulations
January 6, 2011
Page Two
The process of designing and constructing is one of man's most compiex and daunting endeavors - it
often is the means by which we measure the success of an entire civilization (to wit, the "ruins" of
ancient worlds are typically viewed as how advance they were or how resourcefui end lasting), Part
of the complexity is the num ber of parties and Interested players thet mey have a hand In or influence
over a given project, add to that the number of layered jurisdictions (federal, state, iocal, etc,); and
one begins to understand the myriad piaces and opportunities where delaylredundancy can creep
into the process through unnecessary red tape,
This process has become profoundly more complicated, as recently noted in the Civil Engineer
BLOG: "[tlhe environmental protection movement has contributed to the uncertainty for construction
beceuse of the Inability to know what will be required and how'long it will take to obtain approval from
the regulatory agencies, The requirements of continued re-evaluetion of probiems and the lack of
definitive criteria which are practical have also resuited in edded costs,'"
While examples of red tape cen be found in procurement of services, environmentel requirements,
pUbilc safety, financial requirements (FinReg), project deilvery, payment systems, benefit mandates
(health care reform), and countless other areas - they ail hold some things in common: lack of
uniformity, redundancy, end inefficiencies,
(A) Streamlining
"As a people we have chosen to function under a political system that promotes diversity of
governmental euthority, and structure, As a result, we have developed a national regulatory system
weil meaning in Its intentions, but layered and overly complex. Our social purposes, missions, and
public interests often compete, with our 44,000 jurisdictions, ail 50 states, several territories, and the
federal government each amending, adopting, interpreting, and enforcing five major sets of
construction codes and over 2,000 technical standards governing the slt[e selection), design, and
construction of buildings (NOTE: just "b~uildings" Is being considered here - in other words "vertical
construction" - not roads, bridges, environmental remediation, etc, etc,)," See, NCSBCS and its 54
national partners [hereinafter "Ailiance"] web site entitled: Streamlining tile Nation's Building
Regulatory Process (www.ncsbcs.orglnewsiteIStreamlineIStream.htm)'
And tile cost of red tape can be substantial, The AlliancelFIATECH Project has found that increasing
the efficiency of modern construction codes, rules, and regulations as weil as reducing the amount of
time it takes to move a new building or bUilding renovetion through the regulatory process byes much
as 60% annuaily, cen also save both the private and public sectors tens of bililons of doilers,
When extrapolated to the fuil construction market, the study notes that:
.a TIle Environmental Protection Agency (cPA) has long been a souroe of regulatory Inefficienoy and costs. Almost 30 years
ago Land /Economics (Vol. 59, No.1. February 1983) pUQlIslJed an article entitled: "Impact of Regulatory Delays 011 the Cost of
Wastewater Treatment Plants"by Krista S, Reed and C. Bdwin Young whlcl) pointed out that "Tile red tapa necessary to meet
the EPA requirements frequently delays tho'stat1 of construction an average of 2 to 4 years," 19.. @ page 35.
:IThe NatronatConference of Stales on Building Codes and Standards, Inc, (NCSBCS) has worked oval' tile years with fadaral
agancies and public and privata sactor organ/zatlons, and has now joinad wltli tha EIATECH Streamlining Project and tile Stalo
and Local government support activltlas of Robert Wible & Associatos with a goal to reduce the amotmt of tima /t ta{(as to move
l>uiJdJllgs through the regulatof}' system by as much as 60%.
January 6, 2011
Page Three
Regulatory Costs = 10% oft/7e Annual $1.0 trillion ill U.S. COllstruction or $100 Billion in costs.'
BUT, even with these enormous savings - much, if not aii, of the purpose of these procedures could
be accomplished without the unnecessary deiays and costs' - that's not just a theory, but a fact
proven by the experiences borne from projects across the country when time is of the essence.
(8) Contrasting ProJect Experiences

There are any number of exampies and experiences over the years where we can focus on the ciear
unmistakabie lessons we've learned and put them to work across the board on a myriad of public.
projects so that we get the benefits of efficient, science-based, and cost/time sensitive regulations
without the unnecessary and wasteful burdens. Or we can ignore them and continue with wasteful
inefficient procedures.
• Cutting Through Red Tape (Early Completion): After barely one year (some three months.
ahead of schedule) a new 1-3SW bridge stood where one tragicaiiy coiiapsed on Aug.1 2007.
The old span carried more than 140,000 vehicles a day and the loss of the bridge was
costing $400,000 per day in diminished revenue, increased commuter expenses, and burden
on surrounding roads. "Business as usual" and needless regulatory delays would not be
acceptable or tolerated by the devastated community. When Incentives exist, the regulations
and red tape can be overcome/managed and eliminated to create a notable success: The
Interstate 3SW bridge replacement project was completed early/below budget and was
awarded America's Transportation Awards' Grand Prize for 2009 by the American
Automobile Assn., the American Assn. of State Highway & Transportation Officials and the
U.S. Chamber of Commerce. [RESOURCE: Linda Figg, Figg Engineering Group (FL)J
Typical Project Delays: The project to rehab the City of Chicago's "Redline" and bring it to a
state of good repair, on its existing right away (which is currently in disrepair and "failing
" The Alliance documented the savings from streamlining Bnd use of IT matllods for building projects - Bnd then applied it to
2007 Construction Data (foday, construction spending is down to approximBtely-$810 bifJion. of which about $256 billion is fn
non«residential building).
The Alliance/FIATECH web site notes: "This is not about regulatory abandonmentJ This is about spending botll government
!i
and pr/.vate sector dollal'S wisely."
By 2007, tile study found vast sBvings from seemingly simply effieiancfes such es: <
(1) e-Permit Processing now used in over 500 jurisdfotions across the nation ranging in population from Los Angeles
(3,6~5,000) to Cobleskill, NY (5,300) reduce steff and buJldlng owner/architect times to process permits by between 30- 40%,'
(2) Interactive Voice Response (IVR) systems in Silelby Co" TN; Orlando, FL and Washington Co., OR reduce the time to
schedule Bnd conduct Inspections from 2~3 days to lass than 24 hours,' (3) Mobife "aid Inspection teohno/ogy being used In
oities including Piloenfx, AZ,' San Dimes, CA Increase the number of inspectlorts performed per day by 25% and reduce
contrector downtrme waiting for inspections end their results by 20%; (4) e-Plen Review now being conducted fn:Atlante, GA,'
Bend,. OR; "MarlcopB Co" AZ; Osceola Co., FL end Bdozen other jwisdlctions reduce the amount of time It takes to review
plans by 40%, eJimfnate lost plans, and reduce by 80% the number of trips to these Jurisdictions by out of stete
owners/architects,' and (5) streamlined processes are getting bulfdlngs up and open faster, putting both people to wor/< end
revenues into the jurisdIction's coffers sooner; forexemple e 200 room hotel openj!Jst 3 months e£Jl1ier lIsfng streamlined
processes with an 80% occupancy = $144,000 In added tex revenues to ejurlsdictioll jllst from fila 10% occupency tax on
$100lnlght ,"oms.
- - - - - ~------ - - - -~-- ~-~-- ----~- - - - - ~ - - - - -
CIRT LeUer on Excessive Regulations

January 6, 2011
Page Four
down") is estimated to cost $4 biliion. lithe CTA "Chicago Transit 'Authority" had the money in
their hands today, the project still could not be tlnlshed until 2019; even though the
construction should only take two years. The delay of some 7-years Is due to the EPA, EIS,
and all the other groups that have to touch the project (notwithstanding It's an existing line
that is operating now) preventing the ,start of construction tor yearsl The Mayor of Los
Angeles Is facing the same type of delays In building a number of his projects in his city.
[RESOURCE: Jim Kenny, Kenny Management Services, (ILl)
(C) Procedures & Process

Hidden in any discussion of regulatory waste is the procedural and process burden (or "paper
work") that typically accompanies any rules. Examples of this process are both universal in
application and often times unique or specific to industry groups and/or regulated areas. The
same is true for the design/construction community.
• Compliance and Paper Work Costs/Delays: Somewhat unique to the AJE/C community, the
federal agencies appear to be "beefing-up" and hiring fuli-tima staffers to assign to large
projects involving so-called "stimulus" funds, where they are requiring monthly oversight
meetings to ensure compliance with federai gUidelines. The San Diego courthouse is in the
category of such a "mega-project" (over $1 OOM): contractors are devoting a number of people
and resources to make sure they are in compieta compliance -- the paperwork required Is
akin to a monthly tederal audit.
Ragulations have not been aitered drastically, but chances of being auditad have Increased
and audits to a greater depth have baan promisad. Tha OFCCP, in fact, has elhninatad thair
"desk audit" procedura and have moved to more aggressive in-depth on-sita auditing process
across the board - this then requiras greater preparation for potential audits on tha
contractors' part in anticipation of the notification letter or knock on tha door.
Procurement Rules for Construction Projects: Another example of regulatory rule making that
has a direct Impact on costsltlme relates to procurement procedures for AJE/C projects:
l> Use of project Labor Agreements (PLA) on Federal Construction Projects: The
new ruie seeks to implement President Obama's Executive Order No. 13502 (Feb.5,
2009), which for the first time establishes a policY of "encouraging" federal agencies
to consider imposing union-only PLA's on federai construction projects whose total
costs exceed $25 million. Besides the obvious potential (and likely) impact on
increasing costs for federal projects (which means less proiects can be initiated), the
proposal also end runs Congressional mandates and laws. [RESOURCE: Ben
Brubeck, ABC (brubeck@abc.org)]
). Redefining "Inherently Governmental": One of the more pernicious expansions of

government Is its willful efforts to compete with the private sector. To further that
aim, the Administration has undertaken a rulemaking process to expand and flip the
intent of what is "inherently governmental" so es to prevent worll from being
contracted to the private sector. Clearly this has a direct impact on the ability of firms
II The proposal Gontemplat€lS expanding the PLA mandata to projects that do not directly Involve the federal government (as a
palty to the contract) by simply attaching the requIrement to the funding, Cutrently, casas appear to resfrict such an expansive
reading of tile NLRA. The proposal also interferes with Congressional direction that federal agencies should strive to aobtaJn
fUll and open eompstition a as set forth In the "Competition In Contracting Act." Moreover, the rlile Violates and Ignores .5 U.S,C.
804 (Congressional Review Act) and the Reguletory Flex{bility Act.
•
------

Jenuary 6, 2011
Page Five
to survive and maintain their personnei if the government agency reduces or stops
contracting out work.' [RESOURCE: John Palatiello, BCFC QQbn@jmpa.us)].
~ "Card Check" The potential remains, without the votes in Congress to pass a
change in the law related to the so-called "Card Check" legislation, the Administration
will turn to the NLRB's rulemaking authority. Given the construction industry's labor
intensive nature, and the fact it is fairly highlyunionizad (at approximately 14.5%),
such a rule or regulatory change will have an immediate and direct impact on the
construction portion of the industry.
Conclusion
The time has come, if not long past, for efforts to focus on ways to roll-back, sunset, repeal, and/or
de-fund the excessive "regulatory complex" that has arisen to new Ileights over the past decade.'
Beyond these measures, the courts may also need to playa role to reverse the imbalance.'
Short of outright repeal and/or elimination of excessive regUlations and rules, the affect of
streamlining them whereby actions are done concurrently and Shared among and between
jurisdictions/agencies so that a project may move fOlWard in a timaly manner devoid of unnecessary
delays would greatly improve the ability of NE/C firms to complete work and gainfUlly employ more
Americans. Right now, dollars allocated to be spent on these projects are subject to endless
redundant time consuming and often wasteful rules which weigh down efficiencies and delivery times,
while increasing costs.
To expect the U.S. economy to expand, create jobs, and become robust through government
intervention and excessive regulations, is to expect something that "never wes ane/ never will be" - to
paraphrase Thomas Jefferson.
Sincerely,
l~~~
President
Construction Industry Round Table
7 The OFPP guIdance Jetter's construct reverses the original and fong~he'd intent of federal poficy to contracf~out for goods and
services unless tlley were ~inherently governmental" in nature, to one that now suggests tI}8t agency omera/s must prove it is
IJQ/. "Inl,erently governmentel" /0 con/ree/-oll/, /See. 75 Fed. Reg, 16,196 (Marcil 31. 2010)}.
a GIRT is aware that the new 11th Congress may take-up a number of proposals tIlat seek to rebalance endloreddl'BSS the
regulatory complex that is repidly replacing tile Constitutions/safeguards and divisions that are,the halfmark of Ollr
governmental system. The Round Table supports sl1ch efforts end commends these along with sac/) suggestions as put forth
byJ, T, Young to apply deficit-cutting techniques bycreef/ng e ~Regtdatory Budgef' t!Jat begins to quentlfy the enormous
"h.ldden tax" found In excessive regulations end rules, (See, Viewpoint, IBo (Dec. 29, 2010) pege A'/1],
9 Unfortunetely, the courts heve been exploited and usad to expand tJ)e regulatory reach by advocates who have lIsed them
(often outside of their axpertise or scientific 'wow/edge - sometimes influenced by feulty Or even fraUdulent date, as In the case
of C02 emissions) to 'get fevorable regulatory outcomes thet far exceeded the ruJemaking process or Congressional intent.
However more recently, the courts heve come down hard on some excessive reacl1es by the FCC (In tlle case of "net
neutrefify" proposed rules), EPA ("jh Circuit remended the 2009 construction storm water rule), and Dol's mendatory oil drilflng
moratorium whfch was struck down as arbitrary and caprIcious, as welf as potentlel repeal of portions of the massive health
care bflf.
--~~.~-_.~-~-- i
_ _ _ _ _ _ _:lmPmlm;!{ii,·;q;f,tr*1YJ.~!!I:m IIlIIII ---------
1'EfJA' .
The Wireless Association'" Expanding tl1e Wireless Frontier
January 19, 2011
The Honorable Darrellissa

Chairman
House Committee on Oversight and Government Reform
Washington, D.C. 20515
Dear Chairman Issa:
Thank you for your January 11 letter seeking assistance in identifying existing or proposed regulations
that may negatively Impact job growth in the wireless Industry. CTiA - The Wireless AssocJatlo,n@
("CTIA") greatly appreciates the opportunity to respond and to highlight several areas where on-going
regulatory activity threatens to impose significant new costs that will inevitably slow job growth, chill
investment, impair innovation, and raise end-user costs to the detriment of the American economy.
CTiA Is an International nonprofit membership organization that has represented the wireless
communications Industry since 1984. Membership In the association includes wireless carriers and
their suppliers, as well as providers and manufacturers of wireless data services and products. Our
membership is part of an industry that now serves more than 290 million U.S. subscribers, directly
employing more than 23S,000 people, while investing more than $20 billion annually to expand and
upgrade America'swireless networks.
The investment, innovation, and competition that characterize the U.S. wireless industry have
produced a marketplace in which Americans enjoy more choices and consume more minutes of use,
while paying a lower price per minute, than consumers in other developed nations. It Is not an
overstatement to say that the mobile revolution that has occurred over the last quarter century has
changed the way we work, learn, shop, and play, all while driving economic growth In a positive
direction. The mobile broadband services offered by CTIA's members are a key component of the
United States' efforts to Increase broadband availability and adoption.
Global leadership in the wireless industry Is not guaranteed to us, however, and policymakers must
realize that the wireless industry's "engine for growth" can be slowed or stalled by III-conceived,
unnecessary, or burdensome regulations. In the balance of this letter, i provide a high-level description
several proposed regulations that would seem to fit squarely within the scope of your Inquiry.
1. FCC Proceeding re: Amendment of Parts 1, 22, 24, 27, 74, 80, 90, 9S, and 101 To Establish
Uniform License Renewal, Discontinuance of Operation, and Geographic Partitioning and
Spectrum Disaggregation Rules and Policies for Certain Wireless Radio Services
In May 2010, the Federal Communications Commission ("FCC" or "Commission") issued a notice of
proposed rulemaking addressing certain licensing and license renewal rules.' Specifically, proposed
Section 1.949 requires a "detailed description" of the licensee's service during "the entire license
period," addressing the following factors:
1400 16th Street, NW Sult0 600 Wsshington, DC 20036 Muin 202.785.0081 Fax 202.785.0721 w\tVW,ctia,org
(1) the level and quality of service, including population, area served, number of
subscribers, services offered;
(2) the date service commenced and whether service was ever Interrupted, and the
duration of any Interruptions or outages;
(3) the extent to which service Is provided to rural areas;
(4) the extent to which service is provided to tribal lands; and
(S) any other factors associated with the level of service to the pUblic.
Without any countervailing benefit to the public, the proposed rules would Introduce significant new
burdens to the licensing process for applicants and the Commission alike. 'Over the next 10 years, this
increased burden would be applied to the nearly half million renewals that will be submitted to the
FCC. These reporting requirements wJII Impose both significant financial and personnel resource
burdens on wireless licensees - resources that could be better spent In the provision of wireless
broadband services and in Increasing deployment to unserved and under-served areas.
This Is by no means the oniy overly burdensome Information collection requirement the Commission is
proposing. But, as a result of the Commission's vague descriptions of what will comprise a sufficient
renewal showing, it is difficult to highlight specific additional concerns about the overall Impact of the
data collection, only that they wJII be extensive and costly. However the Commission defines the
nebulous "other factors associated with the level of service· to the public," In order to comply,
licensees will require additional resources, inciuding the Identification and training of new staff.
Collecting data regarding cell site transmitter stations, types of facilities in operation, descriptions of
Investments, expansion plans, and more would require extensive training and divert employees from
other important responsibilities. None of these burdens seem to be reflected In the Commission's
discussion of the proposed collection requirement.
2. FCC's "Bill Shocl<" i>roceeding
On October 14, 2010, the FCC issued a notice of proposed rulemaking' addressing the alleged problem
of wireless "bill shock," which the Commission defines as "sudden, unexpected Increases In
[consumers'] monthly bills that are not caused by· intentional changes in their service plans." In its
Ni>RM, the Commission proposes to mandate the delivery of one·slze-fits-all "usage alerts delivered
via text message, other usage controls, and online comparison tools," while ignoring the variety of
tools already available from numerous mobile providers for consumers who wish to monitor, track, or
limit their wireiess usage,
To put the scope of the alleged "bill shock" epidemic in context, the FCC's Consumer & Governmental
Affairs Bureau asserted last October that it expected to receive approximately l,SOO"blll shock"
complaints in 2010: Since the number of wireless subscribers rose to aimost 293 million by June
2010,' this expected number of complaints equates to about five per million subscribers - a complaint
rate of lust five ten-thousandths of one percent.
Nonetheless, the Commission appears to be moving forward with its proposed regulations, and Is even
considering applying these obligations to prepaid mobile services, which by definition are not billed
after charges are incurred, thereby eliminating any risk that any prepaid wireless service customer will
ever receive a bill containing unanticipated charges.
2
Beyond the fact that the Commission lacks a sound rationale for imposing "bill shock" rules, the
Commission seems also to have radically understated the cost of complying with Its proposed regime,
which It suggests could be accomplished for as little as $16,000.' This estimate is challenged by T-
Mobile's comments in the proceeding, which note that:
"The NPRM grossly underestimates the costs associated with Implementing the
proposed rules. In its submission to the Office of Management and Budget pursuant to
the Paperwork Reduction Act, the Commission estimates that many wireless providers
may "on occasion" make "some modifications to their existing billing systems to
comply with the proposed requirement to offer usage alert notifications." The
Commission further estimates that within each organization, the proposed rules can
be implemented by one person within each organization, based upon 140 hours of
work annually, for less than $16,000. These estimates do not come anywhere remotely
close to reflecting the reality of the wireless marl<etplace and the resources necessary
to implement the proposed rules."·
T-Mobile's criticism was echoed In the comments of the Rural Cellular Association, which noted that Its
"members estimated the cost to Implement the FCC's proposed real-time notifications and alerts to be
around $2 million per carrier," which, with an average RCA member having about 20,000 subscribers,
would cost approximately $100 per subscriber, roughly what an RCA member might expect a
consumer to pay for two months of service.' Thus, while the Commission suggests that billing system
modifications sufficient to comply with the obligations proposed In the NRPM could be accomplished
for as little as $16,000, the carriers that possess actual expertise In dealing with complex billing
systems provide estimates that are several orders of magnitude larger.
The FCC should refrain from initiating prescriptive rules that not only would likely cost carriers (and
therefore consumers) tens, if not hundreds, of millions of dollars to put Into practice, but that also
would raise numerous legal issues, create substantial implementation challenges, and force companies
to adhere to a set of one-slze-flts-all government standards Instead of creatively competing in the
. provision of service to customers. Differentiation through competition will best serve consumers and
ensure the efficient allocation of carrier resources.
3, The PHMSA Lithium Battery Shipment Proceeding
On January 11, 2010, the Pipeline and Hazardous Materials Safety Administration ("PHMSA") proposed
to adopt a new set of regulations governing the cargo transportation of lithium batteries and products
containing them -laptops, cell phones, medical devices, and many others. The regulations would be
inconsistent with International standards adopted by most U.S. trading partners, Ignoring the fact that
the market for lithium batteries and the products containing them is global in nature. PHMSA received
over 100 substantive comments - including from CTIA - on the rule, all but a handful of which opposed
the proposaL"
While PHMSA estimated the first-year cost of implementing its proposed rules at less than $10 million,
private sector evaluations of the rules suggest that PHMSA has grossly underestimated the cost of
compliance with its proposed rules. Implementation of the rules proposed by PHMSA would require
the restructuring of existing distribution practices of wireless carriers and their suppliers, as the rules
would effectively preclude current "just In time" inventory supply management and create
3
requirements for more warehousing space and Investment to carry unshipped inventory. The impact
of such restructuring has been estimated by Campbell Aviation Consultants and TransSystems
("CAC/T"), at the request of the Portable Rechargeable Battery Association, to exceed $1.1 billion in
the first year aione. Individual and proprietary estimates by several CTIA member companies suggest
that large as it Is, CAC/T's evaluation may in fact understate these costs. But even if CAC!T's estimate
is taken as correct, PHMSA's estimate -like the FCC's in the "bill shock" proceeding - falls short by two
orders of magnitude.
*l!llk**
Each of these regulatory efforts seeks to impose broad new burdens on one of America's greatest
success stories. Taken collectively, these three proceedings suggest the need for regulators to exercise
greater rigor In the estimation of the costs associated with proposed regulation, and for Congress to
engage In vigorous oversight of agencies' cost estimates before rules are adopted.
A potential solution to the type of problems raised in these proceedings would be for Congress to
enact legislation that would reimpose the framework contained In Executive Order 13422. That action,
taken by President George W. Bush in January 2007 and rescinded by President Barack Obama In
January 2009 by means of Executive Order 13497, required agencies to Identify in writing the specific
market failure 6r problem that warrants a new regulation, while prOViding their best estimates of the
cumulative regulatory costs and benefits of the rules they expect to publish in the coming year,
coupled with an expansion of the review to be conducted by the Office of Information and Regulatory
Affairs. Codifying that process and extending it to cover all Executive branch and independent agencies
with rule making authority would go a long way toward ensuring that regulatory efforts are narrow,
targeted, and minimally burdensome, thereby preserving American industry's ability to invest,
innovate, and grow.
Thank you for the opportunity to proVide this input to the Committee. CTIA looks forward to working
th
with you during the 112 Congress.
Sincerely,
,0 &~zt7'
~ 1£
J t . Carpenter, JI.
President, Gover ent Affairs
'In the Matter of Amendment of Parts 1, 22, 24, 27, 74, 80, 90, 9S, and 101 To Establish Uniform License
Renewal, Discontinuance of Operation, and Geographic Partitioning and Spectrum Disaggregation Rules and
Policies for Certain Wireless Radio Services, WT Docket 10-112, Notice of Proposed Rulemaklng (released May
2S,2010).
2 In the Matter of Empowering Consumers to Avoid Bill Shock; Consumer Information and Disclosure, CG Docket
No. 09-1S8, CC Docket No. 98-170, WC Docket No. 04-36, Notice of Proposed Rulemaklng, FCC 10-180 (reI.
October 14, 2010).
, Federal Communications Commission Consumer & Governmental Affairs Bureau, White Paper on Bill Shock,
October 13, 2010, at 3. Paper available at http://fcc.gov/stage/BIII-Shocl<-White-Paper.pdf.
4
4 CTIA survey, available at http://files.ctla.org/pdf/CTIA Survey Midyear 2010 Graphlcs.pdf.
s Specifically, the Commission estimates that system modifications for usage alerts can be undertaken by one
Individual and that they can be accomplished within 100 hours for a total annual expenditure of $6,236. The
Commission also estimates that Implementing the proposed rule regarding disclosure methods for capping and
reviewing usage will similarly be done "on occasion" by one Individual within each organization, and only take 40
hours of work at an annual cost of $2,514. The Commission further estimates that the annualized capital costs
that
providers may expend for upgrading software and other equipment will be around $6,666 per year. See T-
Mobile comments, CG Docket 10-207, at 16, note 40.
6 Comments of T-Moblle, CG Docket 10-207, at 16-17.
'RCA comments, CG Docket No. 10-207, at 7.
6 5ee http://www.regulatlons.gov/lildocketDetall:D=PHMSA-2009-0095.
5
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--'---'-'--- -----'----I
cuna.org
January 5, 2011

Chairman
United States House of Representatives
Dear Chairman Issa,
On behalf of the Credit Union National Association (CUNA), I am writing in response

.!o your letter of December 10, 2010, requesting information on regulations that have
':!j\d a negative effect on job growth in the credit union system. CUNA is the nation's
.•. ~~~I1,~t credit union advocacy organization, representing approximately 90 percent of
mii1':frl1'(:.QO state and federal credit unions in the United States and their 93 million
'Witl'irtb€F~.
Relieving credit unions' regulatory burden is a key objective for CUNA. Credit unions
are not-for-profit financial cooperatives; the only owners of a credit union are its
members, who receive the benefit of ownership through reduced fees, lower interest
rates on lending products and higher dividends on savings products. Because of this
structure, the cost of a credit union's compliance with unnecessary and unduly
burdensome regulation impacts its members more directly than bank customers.
Every dollar that a credit union spends complying with reguiation is a doliar that is not
used to the benefit of the credit union's membership.
Credit unions support reasonable safety and soundness rules as well as meaningful
consumer protection laws. However, the fact is that credit unions are the most highly
regulated financial institutions in the United States, and the regulatory burdens
continue to multiply with little or no regard for the costs of each requirement or the
cumulative impact on the institutions that must comply.
In addition to the regulatory hurdles that have a negative effect on job growth, there
are also statutory constraints that keep credit unions from doing more to help their
members promote job creation and economic growth. In response to your request for
information, we will discuss both the statutory and regulatory hurdles, noting that we
also intend to raise these issues with the Committee on Financial Services.
Regulation of Debit Interchange

For credit unions and their members, the most chilling effect of the Dodd-Frank Wall
street Reform and Consumer Protection Act will be the implementation of Section
1075 related to the regulation of Interchange fees. 1
,.) 1 15 USC 920, 921 and the Federal Reserve Board's proposed rule issued December 16, 2010.
A.1I1 ~ H ~'I
CRI\[)ITUNlONS' PO Hox l,Jl ! Mndison. WI ,3701·0411 I 1)710 MinNal Poinl Road I Marlison. WI S1705·41,54 ! j 3110NE: 60R·131-1JOOO
January 5, 2011
Page Two
Seventy percent of credit unions offer debit cards to their members; while the statute
exempts issuers under $10 billion in total assets (all but three credit unions) from the
regulations promulgated by the Federal Reserve Board, we have long held'that the
exemption is meaningless because the law does not explicitly extend to the Board the
authority to enforce the exemption, and nothing in the law requires the payment card
networks to operate a two-tier interchange system to protect the smaller issuers.
Without a meaningful way to enforce the exemption, smaller issuers may be
subjected to the same, severe limitations on debit interchange fees that the Board
has proposed for large issuers.
Complicating matters further, the law only permits the Board to consider a very limited
set of cost factors when setting the debit interchange rate. Because the Board
cannot consider all costs when setting the rate, the rate that it sets will necessarily be
lower than the costs of providing the service. It is a reasonable - but at this point
academic - question: should the federal gover.nment be setting rates in the first
place? However, if the government is going to set a rate, the rate ought to be high
enough to cover the costs of providing the service. The Board's proposed rate of 12
cents per transaction is estimated to result in a 70% decrease in interchange
revenue. As a result, credit unions and other issuers - including those Congress
intended to exempt from the regulation - will have to find other ways to cover the
costs of providing these services.
The implementation of this provision of the Dodd-Frank Act will absolutely hit the
pocketbooks of Americans holding debit cards. Anecdotally, credit union executives
have told us they may be forced to impose monthly checking account fees in the
neighborhood of $15-$20. This is heartbreaking for managers of credit unions who
work every day to reduce the cost of access to financial services for their members.
Congress needs to repeal this provision of the Dodd-Frank Act before those who are
least able to afford it end up paying for it. Recognizing that the process of repealing
this provision will take some time, we encourage the Committee, in conjunction with
the Committee on Financiai Services, to encourage the Board to delay the
implementation of its proposed rule.
Credit Union Net Worth Restrictions

If there has been one lesson learned from the recent financial crisis, it is that, for
financial institutions, capital is king. Financial regulators in the United States and
around the globe have been looking at ways to increase capital requirements for
banks and other financial institutions in order to ensure that we never again
experience failures like those that were caused by the recent crisis. It is in everyone's
best interest that all financial institutions - including credit unions - have access to
the capital building tools necessary to meet reasonable capital standards.
Credit unions are the only depository institutions in this country that do not have the
legal authority to supplement their capital by issuing capital instruments. And, credit
January 5, 2011
Page Three
unions are the only depository institutions in the United States that must meet specific
capital levels set by statute - not only by regulation - or face asset restrictions and
other sanctions that limit growth. The Federal Credit Union Act requires credit unions
to have 7% net worth to be considered well-capitalized and 6% net worth to be
adequately capitalized:
Over the last two years, as many banks have failed and depositors have sought the
safety and stability of credit unions, some credit unions have had to turn away .
members' deposits or ask members to withdraw deposits in order to retain their
current net worth level or increase it. Credit unions exist to serve members, not turn
them away.
Compounding the problem for credit unions are examiners who, in the current
economic environment, expect even higher net worth, which credit unions can only
build through retained earnings. While sufficient capital is important to individual
credit unions as well as the system as a whole, maintaining arbitrarily high capital
levels may result in credit unions having to curtail services or outreach to their
communities so that their net worth ratios will not be negatively affected.
We will be asking Congress to permit the use of supplemental capital instruments to

boost credit unions' net worth and permit them to continue to fully serve their
members. We hope that the Committee, in conjunction with the Committee on
Financial Services, will give some attention to the inconsistent and arbitrary standards
being applied by field examiners.
Member Business Lending Cap

Credit unions have been providing business loans to their members since they were
first established in the United States over one hundred years ago. They want to lend
more to their members who own small businesses, but they are restricted in the
amount they can lend by a statutory cap imposed in 1998.
In the last Congress, when the Administration proposed spending $30 billion of
taxpayer money to encourage community banks to lend to small businesses, credit
unions encouraged Congress to pass legislation to increase the credit union member
business lending cap from its current level, 12.25% oftolal assets to 27.5% of total
assets. The National Credit Union Administration, the federal regulator for credit
unions, has testified that any risk associated with additional credit union business
loans is manageable and that the cap is not needed for safety and soundness
reasons.
2 12 USC 1790d and 12 CPR 702.

January 5, 2011
Page Four
Bipartisan legislation (H.R. 3380 and S. 2919) was introduced in both chambers in
111 th Congress. Mr. Chairman, we appreciate your having cosponsored this
legislation. which also earned the endorsement of the Obama Administration. We
estimate that if this legislation became law. credit unions could lend $10 billion to their
small business owning-members within the first year of implementation. helping to
create over 100.000 new jobs. This proposal is economic stimulus that does not cost
the taxpayers a dime. and would not increase the size of government. It is a
commonsense proposal that Congress should swiftly enact.
NCVA's Regulatory Flexibility Program

In 2001. NCUA adopted the "Regulatory Flexibility (RegFlex) Program" to allow well
managed credit unions to avoid a limited number of requirements that were imposed
on credit unions by the agency and not directly required by statute. 3 This program
was terminated by the agency in October 2010. The result will be increased
compliance costs for the many credit unions that were eligible to participate in the
RegFlex program.
NCVA Budget
In late 2010. the NCUA approved a 12% budget increase for fiscal year 2011 that
features a 6.1 % salary adjustment for agency union workers, a 3% increase for other
NCUA personnel, and funding for several new positions. Unlike other federal
agencies which receive appropriations from Congress. NCUA is funded almost
exclusively by credit unions. Credit unions are extremely concerned that. at a time
when they are having to cut back on staff and other resources. NCUA is expanding its
budget and workforce in a manner that is inconsistent with the rest of the federal
government.
We have urged NCUA to constrain its bUdget and to look for ways to minimize costs.
and we hope the Committee will do the same. We also believe that it would be
beneficial for the Government Accountability Office (GAO) to regularly conduct an
analysis on the allocation of resources and budget processes for federal financial
regulators.
Examination Practices
Particularly since the onset of the recession. credit unions have raised serious
concerns about examiner practices that seek to eliminate risk rather than allow credit
unions to manage it through exercising business judgment. Increasingly, examiners
are skipping less onerous directives and imposing harsh sanctions when issues arise
that the examiner feeis need to be addressed. even when the credit union is
adequately or well-capitalized.
312 CFR 742.

January 5, 2011
Page Five
CUNA and credit unions support reasonable safety and soundness regulation, but
examiner micromanagement, which is being reported to us by credit unions across
the country, needlessly constrains credit unions' ability to serve their members and
support their communities.
Recommendations
The need for regulatory reform for credit unions has never been more critical. While
we have discussed a number of concerns in this letter, these just begin to scratch the
surface of regulatory hurdles and burdens that prevent credit unions from serving
their members even better. The Committee, in conjunction with the Committee on
Financial Services, can playa critical role in helping credit unions do even more to
help boost the economy and create jobs by supporting the following
recommendations for regulatory improvements:
• Eliminate or increase the statutory cap on credit union business lending.

• Amend the statutory capital restrictions to allow credit unions to strengthen
their net worth with supplemental capital.
• Review how the exemption for small issuers under Section 1075 of the Dodd-
Frank Act can be implemented to protect small issuers, as Congress intended.
• Encourage NCUA and state regulators to reward well-run credit unions by
imposing fewer regulatory burdens on them. Specific examples of reduced
burdens include:
a Streamlined 5300 (call) reports
a 18-month examination cycle (instead of 12 months)
a Automatic waivers from regulatory limitations that are not required by
statute.
• Encourage the NCUA to follow federal agency gUidelines for salary levels and
adjustments for agency personnel.
• Direct the GAO to regularly conduct an analysis and report to Congress on the
allocation of resources and budget processes for federal financial regulators.
• Direct the GAO to conduct a review and report to Congress on federal
financial regulators' compliance with the Paperwork Reduction Act and
Regulatory Flexibility Act, which requires regulators to· take into account the
impact of their rules on small institutions.
• Require federal financial regulators to report to Congress annually on steps
they have taken in the previous year to reduce the regulatory burden on the
institutions they supervise.
• Examine the extent to which the objectives of the Bank Secrecy Act and
related requirements are being met and recommendations to dramatically
reduce the burden associated with these requirements.
• Direct the BCF.P to conduct a study and present recommendations on
statutory and regulatory improvements to reduce regulatory burdens on
financial institutions, consistent with the requirement under the Dodd-Frank
January 5, 2011
Page Six
Act that the Bureau identify and address unnecessary, outdated and unduly
burdensome requirements.
Conclusion
We appreciate your recognition of the significant costs to our communities and the
economy in general associated with the growing regulatory burden faced by credit
unions. We applaud your review of these burdens and welcome the opportunity to
discuss these issues further with you and your staff. Please do not hesitate to
contact me if there is additional information that you need. On behalf of America's
credit unions, thank you very much for your consideration of our concerns and
recommendations.
Best Regards,
Bill Cheney
President & CEO
cc: The Honorable Elijah Cummings, Ranking Member, Committee on Oversight and
Government Reform
The Honorable Spencer Bachus, Chairman, Committee on Financial Services
The Honorable Barney Frank, Ranking Member, Committee on Financial Services
The Honorable Deborah Matz, Chairman, National Credit Union Administration
DBA
iNTERNP.TtONAL
CREATING ECONOMIC VALUE FOR
CONSUMERS AND BUSINESSES

,Janl.iary 10, 2011
Dear Congressman Issa,

:, : .... :, ,':
On behalf of bBA Inte:rnational, the trade association and voice for the debt
" '" bUYiQ~inclustry, we submit this letter in response to your request to identify existing and
':: propg~ed r~gUlations that are hurting job creation and economic growth.
c.' :'". ." .,
Debt buyers are financial institutions which purchase uncollected and charged off
accol.ints from originating lenders for less than the face value of the debt. By creating a
secondary debt market, the debt buying industry benefits the economy by encouraging
consumer lending; providing lenders with a return on what might otherwise be a lost
asset; helping to lower the cost of credit for all consumer borrowers; and helping to make
credit available for lower income consumers. Furthermore, because debt buyers
purchase accounts for less than the face value of the debt, they are uniquely positioned
to offer more attractive repayment options to low and middle income consumers,
allowing consumers to improve their credit records and, by doing so, to increase their
access to, and reduce their cost of credit.
DBA is very concerned about the Consllmer Financial Protection Bureau (CFPB)
and the CFPB's rulemaking authority. As you know, the CFPB has been given
unprecedented powers; has been given broad jurisdiction; and is somewhat insulated
from congressional controls through the appropriations process. A fear of unknown and
potentially adverse CFPB Tulemakings has already begun to chill activity in the debt
industry, especially with regard to possible regulations under the Fair Debt Collection
Practices Act (FDCPA).
The FDCPA is the primary statutory authority regulating the debt industry. The
FDCPA prescribes strong consumer protections, such as restrictions on disclosing
information about a consumer's debt to thl;ci:piirties, and prohibitions o~,!:lj;l,p;resslve,
harassing or abusive collection behavior.1ibe':Federal Trade Commiss,i:9.D'(fTC) had
previously been responsible for enforcingtl1's:P,'DCPA, but the con9res¥it~;~sferred the
FDCPA to the CFPB.
The FDCPA is now over 30'Ye~i~' bid and during that entire ~erl~-d has never
been substantively amended. Th~:&d;;9ress
, . .
should have the opp6i:t~rilty
. to consider
~
comprehensive amendmenl~tq;lb~'FDCPA before the CFPB Iss~eifFDCPA regulations.
Although,'your;lnllir.il,fetter did not reach out to the deol'lndustry, we hope that you
',' WJlI;gjve:'~6~~(a~'"~tibi1:t~ the issues raised in thisletler with re~ard to CFPB rulemal<lng
::;~~~,Jill~t:d6ll\i[tY. If the DBA can provide you with ahy'addltlonal information, please do
" lioth~Slt'a;e to contact us.
Sihi;~tely,
Stuart Blatt
President, DBA International
8400 Westparl' Drive. 2nd Floor, McLean. VA 22'102 • tel: (703) 61 O·02Z~ • rax: (703) 61 D-0232 • Info@dbalnternalional.org • www.dbalnlornallonal.org
----Nj The Fertilizer Institute
Nourish, Replenish, Grow
Janumy 7,2011
The Honorable Dan-ell Issa

Chairman
Connnittee on Oversight and Government RefOl1TI
Dear Chairman Issa:
Thank you for your letter of December 29, 2010, regarding the impact of existing and proposed
federal regulations on the fertilizer industry. The Fertilizer Institute (TFI) represents the nation's
fertilizer industry including producers, importers, retailers, wholesalers and companies that
provide services to the fertilizer industry. TFI is the leading voice for the nation's fertilizer
industry and we appreciate the opportunity to provide our concerns to the Committee on
Oversight and Government Reform. While many of the regulations have had or will have an
impact on our industry, there m'e three main issues of concem that we would like to bring to your
attention.
Fertilizers nourish crops and supplement the soil with essential nutrients. Experts estimate that
fertilizers are responsible for 40 - 60 percent of today' s food production. Our industry feeds the
economy as well. A report conducted recently by Charles River Associates International (CRA)
shows the U.S. fertilizer industry supports 244,000 jobs and adds $57.8 billion in value to the
U.S. economy. The study found that the fertilizer industry directly employs more than 24,800
people who produced fertilizers valued at $15.1 billion in 2006. These jobs had an average
mIDual compensation of $76,000, which was almost 80 percent higher than the U.S. average
compensation across all industries.
The first issue of regulatory concern for the fertilizer industry is an effort by the U.S.
Environmental Protection Agency (EPA) to establish a set of numeric nutrient criteria for
Florida's waters. EPA's precedent-setting final rule entitled "Water Quality Standards for the
State of Florida' s Lalces and Flowing Waters" represents the first time EPA has attempted to
displace a state's efforts to manage nutrient impacts by establishing federal numeric nutrient
criteria. EPA has also stated that it aims to adopt a similm' approach in the Chesapealce Bay and
Upper Mississippi River Basin watersheds.
This highly controversial and precedent setting rule would have a devastating impact on
Florida's already £i'agile economy. According to a study conducted by the Florida Department of
Agriculture and Consumer Services, the total initial costs for Florida agriculture as a result of the
Final Rule will range from $855 million to $3.1 billion. The total recurring (annual) costs, which
include the amortized initial capital costs, are estimated to rmlge from $271 to $974 million.
Capitol View 202.962.0490

425 '111il'd Streel, S.W" Suite 950 202.962.0577 tllx
Washington, DC 20024 www.tfiorg
Beyond the negative economic impact of the rule, TFI has seJious concerns with the disregard
for scientific data and methodologies that characterized the development of these cJiteria. In
order to provide the Committee with a greater understanding of this issue, we are submitting the
following documents: (1) A joint statement of principles on proposed nutrient standards for
Florida, signed by more than 60 national and state trade associations and individual businesses;
and, (2) an independent economic analysis of the mle conducted by Cardno Entrix.
We ask the Committee to consider three main actions regarding this rule. First, request that EPA
commission a thorough scientific peer-review by its Science Advisory Board; second, request
that EPA conduct an independent economic analysis of the rule to show the hue cost of
implementation; and third, witWlOld any funding for EPA to implement the mle until both and
independent scientific peer-review and economic analysis are conducted and require that EPA
incorporate the results of the analysis into the Final Rule.
The second issue of concern is the EPA's proposed Draft Chesapeake Bay Total Maximum Daily
Load (TMDL). This is yet another attempt by the EPA to set precedent; this time by establishing
a TMDL for an area that encompasses 64,000 square miles in sevenjmisdictions. Our concerns
with this proposed rule are addressed in the enclosures labeled: (1) AgJiculhn'al and Forestry
Connnents on the Draft Chesapeake Bay TMDL; and, (2) LimnoTech USDA EPA Bay Load
Estimate Comparison. We believe these two documents outline areas of concern that have yet to
be addressed by the EPA dming their rulemalcing process.
The third issue of concern is EPA's promulgation of regulations to control stationary somce
greenhouse gas (GHG) emissions. TFI has provided comments and interacted with EPA on
several of these rulemalcings. The following rulemaldngs pertaining to GHG emissions are of
the greatest concern to TFI: (I) GHG Mandatory Reporting Rule; and (2) Prevention of
Significant Deterioration (PSD) and Title V Greenhouse Gas Tailoring Rule.
The Mandatory RepOiting Rule requires reporting ofGHG emissions from all sectors of the
economy. TFI litigated this final rule, settled and obtained sigllificant concessions for the
feltilizer industry. However, TFI remains concerned that EPA refused to remove C02 process
emissions that are consumed on-site for mea production from almnonia and nitJic acid facility
reporting. These process emissions are not released to the ambient air fi'om the facility and their
reporting exaggerates tlle GHG footprint for the facility. EPA also proposed to require the
repOiting of all inputs used to calculate GHG emissions and not to afford such data elements
confidential business infonnation status. TFI opposes this effort, which could cause substantial
harm to TFI's members. EPA has recently proposed to delay tlle reporting of these data
elements nntil March 31, 2014, until it can evaluate industJies' assertions.
Finally, the PSD and Title V Greenhouse Gas Tailoring Rule "tailors" major source applicability
thresholds for GHG emissions under PSD and Title V Clean Air Act programs. This is cmrently
in litigation with 20 different entities involved. TFI has serious concerns regarding EPA's
rewJiting of the Clean Air Act to "tailor" tlns Rule's applicability to larger somces. Further, TFI
tal(es issue with EPA's lack oftranspal'ency when developing sector-specific approaches and the
lack of an appropriate public COimnent period on the Rule's guidance documents (as an example,
the EPA Nitric Acid Production BACT guidance document was not noticed in the Federal
Register). Fmthennore, indushy stal(eholders were given a mere two weeks to comment on the
guidance, which included the Thanksgiving holiday. This extremely short timeframe is not
sufficient for those manufacturers that will be substantially affected by such a major rulemaking
to develop a comprehensive set of COimnents. TFI is also concerned about EPA's claims that it
consulted TFI when developing the Nitric Acid Production BACT guidance document. In fact,
the Agency did not consult with TFI and there are significant inaccuracies included in the
guidance. Fmthermore, there is a lack of clarity in tenns of what manufacturers must do to meet
these new regulations and EPA has provided no guidance on how contr'ols will be implemented
and what will constitute BACT. This rulemaldng would primarily impact nitrogen and nitric
acid production, but also impacts phosphate production to some extent. While the BACT
implementation proccss could rcsult in substantial economic hann to TI'I members, a robust
economic analysis is not possible at this point given the lack of clarity and transparency thus far
in the process.
In closing, TFI asks that Congress and the Administration ensure that any legislation or
regulatory actions do not create a competitive disadvantage for America's fertilizer industry.
The U.S. fertilizer industry provides high paying jobs to hardworldng Americans in
manufacturing plants, retail and wholesale businesses and in a host of related industries such as
rail, barge and truck transpOliation. It is therefore critical that any legislative or regulatory
actions do not jeopardize the domestic fertilizer iudustry which is such a vitallinlc in food
production, food security and the U.S. economy.
Sincerely yoms,
Ford West
President
Enclosmes
-1- The Fertilizer Institute
Nourish, Replenish, Grow
William C. Herz
Vice Presidel1t,
Schmt({jc Progm/lls
JOINT STATEMENT OF CONCERNS AND PRINCIPLES ON

. PROPOSED NUTRIENT STANDARDS FOR FLORIDA
On Januaty 26,2010, the U.S. Environment\U Protection Agency (EPA) published a notice of
proposed 1U1emaking (NPRM) to establish water quality standards for Florida's lakes and
flowing waters. 75 Fed. Reg. 4174 (Jan. 26, 2010). The NPRM represents the first time EPA
has attempted to displace a state's efforts to manage nutrient impacts by establishing federal
numeric nutrient criteria. However, EPA has already asserted that it may establish such criteria
for the Chesapeake Bay, and may seek to take similar action in other watersheds. Accordingly,
EPA's NPRM may establish a precedent that has national significance. The undersigned entities
and/or their members - some of whom operate regulated activities in Florida, and some of whom
are located in other states around the country - will all be affected by EPA's action, either
directly or by the precedents that it sets. These entities have agreed on this joint statement,
which presents shared concerns about the Florida proposal and recommended principles for how
EPA and states should move forward in making decisions about development of nutrient water
quality criteria and standards.
CONCERNS REGARDING PROPOSED FLORIDA CRITERIA
In the NPRM, EPA is proposing numeric nutrient criteria for Florida lakes, streams, springs and
cleat· streams, and canals. Key concerns regarding these criteria are as follows:
A. Criteria for Lakes
For lakes, EPA is proposing chlorophyll a, total nitrogen (TN), and total phosphorus (TP) criteria
based on the stressor-response approach. EPA's proposed criteria are based on chlorophyll a
production (the biological response) related to TN and TP levels (the stressors) in Florida for
three categories of lakes: colored, cleat· and alkaline, and cleat· and acidic. In practice, these
EPA's proposed standards are too broad and, by failing to take into account the biology and
diversity of conditions present in Florida's lakes, are often disco1l1lected from designated uses for
these lakes. Waters that fail to meet anyone of EPA's three proposed criteria would be
considered impaired, even if the waters are biologically healthy. As a result, EPA's proposed
criteria for lal(es are not based on the levels of nutrients needed to protect designated uses.
B. Criteria for Rivers and Streams
Neither EPA nor the state of Florida could establish a cause and effect relationship between
nutrients and algal growth in Florida rivers and streams. This weakness should lead EPA to the
conclusion that it is not possible to establish scientifically defensible regional cliteria which
means narrative standat'ds are appropriate, in accordance with 40 C.F.R. 131.11 (b). Instead,
Union Center Plaza 202.962.0490

820 First Street. NE Suite 430 202.962.0577 fhx
Washington, DC 20002 www.lfi.org
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TFI Comments
EPA is proposing criteria based on the reference approach (identifying unimpaired waters and
establishing nutri.ent criteria based on the levels found in those waters). By establishing criteria
for rivers and streams without any consideration of cause- and-effect or consideration of an
impairment threshold, EPA has proposed criteria that are not necessmy to protect designated
uses. -
C. Downstream Protection Values for Lakes
EPA also is proposing to lower its proposed criteria for streams that discharge into downstream
lakes. These downstream protective values (DPVs) m'e not based on data showing that receiving
lakes are impaired. Instead, EPA used the Vollenweider model (which was developed to
evaluate deep lalces with long retention times) to calculate the acceptable DPV. Using
conservative assumptions, this model projects that even unimpacted streams would be a threat to
downstream lakes. As a result, EPA's proposed established criteria would greatly increase the
number of Florida waterbodies considered to be impaired. However, EPA's conclusions and its
criteria are not scientifically defensible because the model used is simply not appropriate for
many shallow Florida lalces.
D. Criteria for Springs and Clem' Stremns
For springs and clem' streams, EPA is proposing a nitrate-nitTite criterion that EPAasserts is
based on experimental laboratory data and field evaluations that show algal growth in response
to nitrate-nitrite concentrations. Again, EPA did not establish a defined impailment level or
demonstrate a cause and effect relationship between the stressor and the response. Thus, EPA
c=ot demonstrate that its proposed criterion for springs is necessmy to protect designated uses.
EPA even suggests that it may apply nitrate-nitTite criterion to all waters in Florida to assist
assessment and management and to "identify increasing trends." 75 Fed. Reg. at 4211. Under
the Clean Water Act, water quality standards are established for the purpose of protecting
designated uses, not to assist in assessment and management or to identify trends. EPA has no
legal basis for establishing a nitrate-nitrite criterion for all Florida waters.
E. Criteria for Canals
For canals in south Florida, EPA is proposing chlorophyll a, TN, and TP criteria that EPA asserts
are based on levels found in canals that are meeting designated uses Witll respect to nutrients.
The proposed numeric criteria for canals, as with those for streams, are not based on a defmed
relationship between nutrient levels and use impainuent. As a result, it is inevitable that some
canals will "fail" the new criteria even though uses are fully suppOlied.
F. Implementation Procedures
In the NPRM, EPA admits that its proposed lalce criteria do not account for natural lake
variability other than that provided by color and alkalinity classification (75 Fed. Reg. at 4191),
and that its proposed streams criteria "may be either more stringent than necessmy or not
stringent enough to protect designated uses" (75 Fed. Reg. at 4192). However, rather than admit
the magnitude of these flaws for defensible and scientifically sound criteria, EPA attempts to
____ Page3 __
April 28, 2010
TFI Comments
provide relief through variances, changes in designated uses, or the use of site specific altemative
criteria. Alternatively, EPA suggests that dischargers may be able to delay meeting the new
criteria through compliance schedules or new restoration standards. These tools would be
difficult to implement and do not make flawed criteria more scientifically defensible.
PRINCIPLES FOR NUTRIENT CRITERIA DEVELOPMENT
EPA's Science Advisory Board (SAB) has reviewed EPA's Empirical Approaches/or Nutrient
Criteria Derivation (draft EPA 2009). In their review of that guidance, the SAB advised EPA
that "[n]umeric nutrient criteria developed and implemented without consideration of system
specific conditions (M., from a classification based on site types) can lead to management
actions that may have negative social and economic and unintended environmental consequences
without additional enviromnental protection." See 1-8-10 Draft Science Advisory Board (SAB)
Ecological Processes and Effects'Committee Advisory Report, at page 37.
To prevent these unintended consequences, EPA should adhere to the following principles when
developing numeric nutrient criteria in Florida or elsewhere:
First, EPA must demonstrate why imposing federal numeric criteria state-wide would be more
consistent with the Clean Water Act than allowing a state to continue to protect water quality
through its water quality management program. If EPA cannot make this demonstration, the
federal criteria cannot be considered necessary, which is the statutory predicate for promulgating
federal standards under section 303(c)(4)(B) of the Clean Water Act.
Second, any federal criteria must meet the requirements of EPA's water quality standards
regulations. This means the criteria must be set at a level that is necessary to protect designated
uses (40 C.F.R. 131.2), must be based on a "sound scientific rationale," (40 C.F.R. 131.11 (a»,
and must be developed using "scientifically defensible methods" (40 C.F.R. 131.11 (b».
Accordingly, for specific waterbodies, EPA must establish on a cause-and-effect relationship
between the nutrient being controlled and the biological response that affects the designated use.
In addition, for each waterbody, EPA must establish the threshold below which additional
nutrient reductions will result in harm.
Third, EPA must not promulgate nutrient standards below natural background levels.
Fourth, EPA must not base its criteria on inappropriate models.
Fifth, criteria should apply only if the specific nutrient is affecting plant growth.
Sixth, criteria must set a level of protectiveness, not a load allocation. Specifically, federal
criteria must not usurp site-specific determinations of what concentration or loading of nutrients
is protective, including detenninations made through the TMDL process.
Seventh, if EPA intends to apply its federal criteria in upstream states, it must fully engage those
states in its mlemaking process.
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April 28,2010
TFI Comments
Eighth, EPA must recognize that federal criteria will be directly incorporated into pennits, and
tllerefore EPA's cost estimate must fully account for the costs of implementing its proposed
standards, to dischargers, to agriculture, to city storm sewer systems, and to the State as a whole.
Because nutrients are critical for food production, EPA's economic analysis also must also
include the adverse economic impacts from reduced food production resulting from reductions in
fertilizer use implemented as a management practice.
Sincerely,
t~~1~_
William C. Herz
Vice President of Scientific Programs
The Undersigned Organizations Support These Comments

AbitibiBowater
Agricultural Retailers Association
American Chemistry Council
American Coke and Coal Chemicals Institute
American Farm Bureau Federation
American Forest and Paper Association
American Iron and Steel Institute
American Meat Institute
American Petroleum Institute
CF Industries, Inc.
Federal Water Quality Coalition
Florida Engineering Society
Florida Fertilizer & Agrichemical Association
Florida Home Builders Association
Florida Land Council
Florida Minerals and Chemical Council
Florida Nursery, Growers and Landscape Association
Florida Poultry Federation
Florida Water Quality Coalition
Georgia Pacific
Glatfelter
Graphic Packaging International, Inc.
GROWMARK, Inc.
Illinois Fertilizer & Chemical Association
Indiana Plant Food & Agricultural Chemicals Association
Irrigation Association
Kansas Agribusiness Retailers Association
Manufacturers Association of Florida
MeadWestvaco Corp.
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April 28, 2010
TFI Comments
Mid America CropLife Association

Minnesota Crop Production Retailers Association
Missomi Agribusiness Association
Monsanto
National Association of Wheat Growers
National Association of Homebuilders
National Cattlemen's Beef Association
National Com Growers Association
National Mining Association
National Pork Producers Council
Nebraska Agri-Business Association
Newpage Corporation
Packaging Corporation of America
Ponderay Newsprint Company
Port Townsend Paper Corporation
Professional Landcare Network
Rayonier, Inc.
Sanitation Districts of Los Angeles County
Smurfit-Stone Container Corporation
Sonoco Products Company
. South Dakota Agri-Business Association
Southem Crop Production Association
Sugar Cane Growers Cooperative
The Alabama Pilip & Paper Council
The Fertilizer Institute
The Georgia Paper and Forest Products Association
Tri-TAC
United Egg Producers
United States Steel Corporation
Virginia Agribusiness Council
White Springs AgricultW'al Chemicals, Inc. DIB!A Pes Phosphate- White Springs
Wisconsin Crop Production Association
Wyoming Ag-Business Association
Wyoming Crop Improvement Association
Wyoming Wheat Growers Association
INTERNATIONAL
REPORT
Prepared For:
The Fertilizer Institute
Washington, DC
Economic Contributions of the U.S.

Fertilizer Manufacturing Industry
Prepared By:
Jeff Plewes
Anne Smith
CRA International
1201 F St, NW, Suite 700
Date: August 2009.

Economic Contributions of the U.S. Fertilizer Manufacturi~g Industry
TABLE OF CONTENTS
1. EXECUTIVE SUMMARY 1
2. INTRODUCTION 3
2.1. THE U.S. FERTILIZER INDUSTRY 3

2.2. ApPROACH , ; 5
3. ECONOMIC CONTRIBUTIONS OF THE U.S. FERTILIZER MANUFACTURING

INDUSTRy : 7
3.1. DIRECT CONTRIBUTIONS 7

3.2. ADDITIONAL CONTRIBUTIONS 10
3.3. REGIONAL DISTRIBUTION OF CONTRIBUTIONS 11
3.4. DETAIL ON ECONOMIC CONTRIBUTIONS BY TYPE OF FERTILIZER 12
3.4.1. Nitrogenous fertilizer manufacturing 12
3.4.2. Phosphatic fertilizer manufacturing 15
3.4.3. Potash fertilizer manufacturing 17
3.4.4. Fertilizer mixing 18
4. ECONOMIC VALUE OF DOMESTIC FERTILIZER PRODUCTION 20
4.1. liMITING DEPENDENCE ON UNSTABLE IMPORTS 20

4.2. "USE" VALUE OF FERTILIZER 21
APPENDICES 23
ApPENDIX A: METHODOLOGY 23
ApPENDIX B: ADDITIONAL DATA TABLES 27
ApPENDIX C: STATE-LEVEL FOCUS 33
4.2.1. Louisiana 33
4.2.2. Florida 35
Page i
Economic Contributions of the U.S. Fertilizer Manufacturing Industry
FIGURES
Figure 1: Sources of fertilizer manufacturing Industry output and value added 8
Figure 2: Regions evaluated for economic contribution 11
Figure 3: U.S. fertilizer imports from 1998 to 2008 21
TABLES
Table 1: Fertilizer manufacturing Industry output, value added and employment. 7
Table 2: Fertilizer manufacturing industry employment and compensation (excluding Potash)

................................................................................................................................................... 9
Table 3: Fertilizer manufacturing industry total economic contributions 10
Table 4: Regional distribution of total economic contributions 11
Table 5: Economic contribution at state and national level, nitrogenous fertilizer

manufacturing (states with plants) 12
Table 6: Ammonia plant capacity by state (2006) , 12
Table 7: Economic contribution at state level, nitrogenous fertilizer manufacturing (states

without plants) 13
Table 8: Value added and sector inputs: nitrogenous fertilizer manufacturing 14
Table 9: Economic contribution to state economies, phosphatic fertilizer manufacturing ...... 15
Table 10: Phosphate rock mining and phosphoric acid production by state 15
Table 11: Value added and sector inputs: phosphatic fertilizer manufacturing 16
Table 12: Economic contribution to state economies, fertilizer mixing 18
Table 13: Value added and sector inputs: fertilizer mixing 19
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Economic Contributions of the O.S. Fertilizer Manufacturing Industry
1. EXECUTIVE SUMMARY
Fertilizers are weli known for their contribution to the world's food supply. They provide
nutrients to soUs to support increased yields of healthy crops that feed the world's
populations. One often cited statistic regarding this contribution is that fertilizers are
responsible for between 40 and 60 percent of the world's food supply. 1 While this is an
impressive contribution, there is another significant economic contribution that has not
received the same level of attention - the economic value and jobs provided by the fertilizer
manufacturing industry.
The United States has a significant fertilizer manufacturing industry, with production plants
and distribution faciiities across the country that provide jobs, create value for investors, and
support a large network of suppliers that also provide jobs and create value. The economic
contribution of the U.S. fertilizer manufacturing industry is an increasingiy important topic.
The industry faces serious chalienges from changes in energy markets and proposed federal
policies such as climate change legislation.
The foliowing is a summary of the estimated contributions of the U.S. fertilizer manufacturing
industry in the year 2006:
• The industry directly employed over 24,800 people who worked to produce over
$15.1 billion in output. These jobs had an average compensation of $76,000, which
was almost 80 percent greater than the U.S. average compensation across ali
industries.
• The purchase of materials and services to support fertilizer manufacturing led to an

additional 73,000 jobs along the supply chain.
• The total economic contribution of the industry was $57.8 billion. This value includes
direct contributions of the manufacturers, contributions through suppliers, and
household and government spending related to compensation, investment returns,
and taxes. The total number of jobs provided was over 244,500.
• Economic contribution can be evaluated by seelor: The sectors are defined by the
three main nutrient types: nitrogen, phosphorus, and potassium.
o Nitrogenous fertilizer manufacturing - This sector provided a total economic

contribution of $23.7 billion and 80,000 jobs, of which $10.3 bUlion and 7,565
jobs were direct. The sector purchased a significant amount of its inputs
from the domestic natural gas production and pipeline sectors. The
1 W.M. Stewart et al., "The Contribution of Commercial Fertilizer Nutrients to Food Production," in Agronomy Journal, January-
February 2005, pp.1
Page 1
Economic Contributions of the U.S: Fertilizer ManufaCturing lridustri .
economic activity was predominantly located in states with ammonia plants

or large wholesalers of fertilizer. The states with the most economic activity
in this sector included Oklahoma, Louisiana and Iowa.
o Phosphatic fertilizer manufacturing - This sector provided a total economic

contribution of $21.2 billion and almost 90,000 jobs, of which $6.6 billion and
7,410 jobs were direct. The sector purchased a significant amount of goods
and services from the domestic mining, trucking, and rail sectors. The
economic activity was predominantly located in states with phosphate mines
and production plants. The states with the most economic activity in this
sector Included Florida (with half of the direct contribution), North Carolina,
Idaho and Louisiana.
o Potash fertilizer manufacturing - Economic contribvtion data for the potash

fertilizer manufacturing sector is not as available as the other sectors due to
non-disclosure ruies. Despite the significant U.S. consumption of potassium
fertilizers, there are only a few potash producing facilities in the United
States. Over 85 percent of potash consumed in the United States is from
international sources, primarily Canada. The potash manufactured in the
United States is produced in New Mexico, Michigan and Utah. While total
economic contribution was not calculated for this sector, a survey of firms
provided an estimate of 1,774 direct jobs.
The contribution values omit some other areas of economic contribution of the fertilizer
manufacturing industry. First, there is value in maintaining a domestic fertilizer manufacturing
industry versus relying on imports. This value is difficult to quantify, but avoiding the risk of
supply constraints of a major' and necessary input in our food production system from
unstable countries provides a real economic value. Second, there is a "use" value of
domestically produced fertilizer in terms of its contribution to the agricultural sector and worid
food supplies. Quantifying fertilizer "use" value is not the purpose of this report, although it is
discussed qualitatively in the final section of the report.
This report provides an anaiysis of the economic contributions of the U.S. fertilizer
manufacturing industry; Section 1 provides a background of the industry. The approach and
methodology are briefly discussed in Section 2 (a more detailed methodology is provided as
Appendix A). Section 3 presents the economic contribution analysis, inciuding analysis by
sector and a focus on two states with significant economic activity in fertilizer manufacturing.
Section 4 further expands on the economic value of using domestically produced fertilizer.
Page 2.
Eaonomic-Corrtrib-uliohs of theU:S~ Ferliiizer MahlJfaclOringlndustry
2. INTRODUCTION
This report provides an analysis of the economic contributions of the U.S. fertilizer .
manufacturing industry. The contributions are considered along the entire fertilizer value
chain, although the focus is on the manufacturing and mixing activities. The report examines
the economic contributions of the entire fertiiizer manufacturing industry as a whole and also
as separate sectors for each of the three main types of fertilizer nutrients (nitrogen,
phosphorus and potassium) and an additional sector focused on the mixing of fertilizer
products.
2.1. THE U.S. FERTILIZER INDUSTRY
The fertilizer manufacturing industry has existed in the U.S. since the early 1800s. Initially
used to mend nutrient deficient soils resulting from poor colonial farming practices, fertilizers
emerged as the key to improving agricultural productivity. New technologies and growing
demand in the early 1900s caused the fertiiizer industry to become one of the largest in the
country.2 The U.S. is currently the second ranked fertilizer producing country in the world,
behind China. 3 The country is both a major exporter (third in the world) and importer (first in
the world) of fertiiizer products. Tabie 14 in Appendix B shows the top three countries in
fertiiizer activity in terms of consumption, production, imports and exports.
Nutrient types define the sectors within the industry
To understand the U.S. fertiiizer manufacturing industry, it is important to differentiate

between the three major types of fertilizer nutrients that are produced and consumed in the
U.S.: nitrogen, phosphorus and potassium. The differentiation is important because each of
the three primary plant nutrients has unique production characteristics and each is derived
from different natural resources.
Nitrogen ~ A primary building block for all organisms, nitrogen is found in abundance
in the earth's atmosphere. However, the majority of plants cannot fix nitrogen from
the air, and thus rely on nitrogen from the soil which is usually added through
fertilizers, as natural replacement rates cannot support the high levels of growth
required in modern agriculture.
Anhydrous ammonia is the source of nearly ail the nitrogen fertiiizer used in the
United States. It is synthesized through the Haber-Bosch process, a chemical
process that combines atmospheric nitrogen with hydrogen. Nitrogen can be
obtained from the air, but the hydrogen Is derived predominantly from natural gas.
Anhydrous ammonia may be applied directly to the soil or converted into other
2 Nelson, Lewis, History of the U.S. Fertilizer Industry, Tennessee Valley Authority, 1990, pp. 99.
3 International Fertilizer Industry Association data for 2005-2006. (see Appendix S, Table 14).
Page 3
nitrogen fertilizers such as urea, ammonium nitrate, nitrogen solutions and

ammonium sulfate. These nitrogen materials can be transported by ship, rail or truck,
and in the case of anhydrous ammonia, also via pipeline.
The U.S. nitrogenous fertilizer manufacturing sector has decreased its production
over the past several years and imports now provide over 55 percent of the nation's
supply.4 A total of 26 U.S. ammonia plants have closed since 1999, representing 42
percent of the U.S. nitrogen fertilizer production capacity. 5 . The key driver for the
closures has been increasing domestic natural gas prices, which can constitute over
90 percent of the input costs for a manufacturer.
Phosphorus - Phosphorus is an element found in every living cell and plays vital
roies in shaping DNA and providing energy for cell activity. It is not found in its
elemental form in nature. To produce phosphatic fertilizer, phosphate rock is mined
and treated with sulfuric acid. This process creates phosphoric acid, which is the
basic material for most phosphatic fertilizers. The reliance on phosphate rock means
that the sector is heaviiy integrated with phosphate mining and plants are mostly
located near the largest reserves of phosphate rock. The United States is fortunate
to be endowed with 6.8 percent of the world's phosphate rock reserves (third behind
Morocco and China using government supplied numbers) and in 2007 had 19
percent of the world's production. 6 Florida is by far the most active state in the
production of phosphatic fertilizer.
Potassium - Potassium is a nutrient that is essential for the plant growth process,
especially water utilization and the regulation of photosynthesis. It is found in potash,
a name for various mined and manufactured salts that contain potassium in a water-
soluble form. Despite significant consumption of potash in the United States, the
domestic potash manufacturing sector is smaller than those for nitrogenous and
phosphatic fertilizer manufacturing. This is due to mineral reserve locations. The
majority of potash consumed in the United States is imported, primarily from Canada,
the largest potash producer in the world. The potash manufactured in the United
States is produced in New Mexico, Utah and Michigan.
The fertilizer value chain includes a diverse network of firms
There are many types of firms operating along the fertilizer value chain, including: suppliers,
manufacturers, mixers, wholesalers, retaiiers and equipment suppliers and operators. As
mentioned, the suppliers vary by nutrient type. While most suppliers do not exist solely to
4 Computed from fertilizer production and trade data reported by the U.S. Dept of Commerce.
5 North America Fertilizer Capacity, International Center for Soil Fertility and Agricultural Development, December 2008, and
data provided to The Fertilizer Institute (TFI) by Blue, Johnson and Associates.
6 U.S. Geological Survey, Mineral Commodity Summaries, January 2006. (see Appendix 8, Table 19).
Page 4
Economic Contributions of the U.S. Fertiiizer Manufacturing industry
support the fertilizer manufacturing industry (e.g., natural gas production), there are some
that would not exist without it (e.g., phosphate mines). The major manufacturing firms tend to
focus on a particular nutrient type, but there are several diversified firms that produce ail three
types in various locations across the country.
Once raw fertilizer ingredients are made at fertilizer production plants, they are either mixed
on-site or distributed for mixing in multiple locations across the country. The mixing facilities
may either be owned by the manufacturers or by separate entities, including large
wholesalers. The mixing and warehousing companies range in size from small rural co-ops
with less than five employees to major wholesalers with brand name fertiiizer products that
can be found on retail shelves across the country. A variety of retailers exist to support the
farmers, landscapers and household consumers of fertiiizers. The application of fertilizer to
fields and yards is supported by equipment manufacturers and equipment operators.
2.2. ApPROACH
The economic contributions of the U.S. fertilizer manufacturing industry can be evaluated
along the entire value chain, from the production of raw materials used in manufacturing
fertilizer all the way to the product's role in bringing food products to consumers. To analyze
the contributions along the value chain, segmentation was required. Focus began on the
direct contributions of manufacturers, then "upstream" activities were considered (materials
sourcing, support services, etc.), and finaliy the "downstream" value of U.S.-produced
fertilizer was examined. The foilowing categories of contributions were considered:
1. Direct contributions of manufacturing - These contributions include direct value

added by the fertilizer manufacturers and mixers. They include employee
compensation, returns to investors, income on property and payments to
government business taxes.
2. Indirect contributions of manufacturing - These contributions result from the

payments to industries that support and supply fertilizer manufacturers and mixers.
The payments to suppliers lead to payments to other suppliers, who pay other
suppliers, and so on, in a ripple effect that ends with leakage out of the region.
This leakage mostly occurs through the purchase of imported goods. The
payments to suppliers are transferred to employees, investors and government in a
manner similar to the way direct contributions are distributed.
3. Induced contributions of manufacturing - The industry's economic

contributions do not end when it prints paychecks for employees, pays its suppliers,
distributes dividends to its shareholders or remits taxes to the government. That
money is filtered back into the economy by household and government spending,
thus greatly increasing the contribution of the industry.
4. Value of U,S.-produced fertilizer - The production value of fertilizer is captured

in the direct contributions of manufacturing. However, the value of the fertilizer
Page 5
Economic Contributions of the U.S. Fertilizer Manufacturing industry
produced can actually be greater than the revenues of the manufacturing industry.
First, there are "downstream" industries that gain value from the fertilizer, such as
garden stores and fertilizer equipment manufacturers. Second, there is significant
vaiue created by the fertilizer's application in the agriculturai sectors.
The first three categories of economic contributions (direct, indirect and induced contributions
of manufacturing) were calculated using the iMPLAN model. IMPLAN aggregates industry
information from a variety of public data sources and quantifies the relationships between
industries at the national, state and locai leveis. The year 2006 was selected as it is the most
recent year for which IMPLAN provides segregated data for the various fertilizer
manufacturing sectors (nitrogenous fertilizer manufacturing, phosphatic fertilizer
manufacturing and fertilizer mixing). These sectors are defined by 6-digit NAICS codes. A
detaiied description of the methodology for using iMPLAN in this analysis, including a
description of the sectors, is provided in Appendix A. The results are in Section 3 of this
report.
The final category of economic contributions focuses on: 1) the value of maintaining a
domestic fertilizer manufacturing industry versus relying on imports, and 2) the "use" vaiue of
domestically produced fertiiizer in terms of its contribution to the agricultural sector and world
food supplies. These two analyses were more qualitative and are found in Section 4 of this
report.
Page 6
3. ECONOMIC CONTRIBUTIONS OF THE U.S. FERTILIZER

MANUFACTURING INDUSTRY
The economic contributions of the fertilizer manufacturing industry can be segmented by

types of contributions (direct, indirect and induced), as well as by sectors within the industry.
3.1. DIRECT CONTRIBUTIONS
Table 1 shows the share of direct contributions of the fertilizer manufacturing industry by
sector for both 2002 and 2006. The direct contributions include output, value added and
employment, which are addressed separately in this section.
Table 1: Fertilizer manufacturing industry output, value added and employment
2006 % of industry total jobs

Output Value Added Emplovment
Nitrogenous Fertilizer Manufacturing 57% 57% 7,565
Phosphatic Fertilizer Manufacturing 29% 20% 7,411
Fertilizer Manufacturino, Mixino Only 13% 22% 8,094
Total 100% 100% 23,070
.. ..
Potash Fertilizer Manufacturing/MIXIng 1,774
Total Uncluding potash) 24,844
2002
% of industry total jobs
Output Value Added Employment
Nitrogenous Fertilizer Manufacturing 35% 42% 8,728
Phosphatic Fertilizer Manufacturing 41% 27% 7,767
Fertilizer Manufacturino, Mixina Onlv 25% 32% 8,245
Total 100% 100% 24,739
Percent change, 2002 to 2006

% change in total
Output Value Added Emplovment
Nitrogenous Fertilizer Manufacturing 195% 93% -13%
Phosphatic Fertilizer Manufacturing 28% 8% -5%
Fertilizer Manufacturino, Mlxino Only -5% 0% -2%
Total 77% 41% -7%
Page 7
Output 7
The U.S. fertilizer manufacturing industry's 2006 calendar year production value, or output,
was $15.1 billion. Combined production values for the sectors in the fertilizer industry were
actually $21.1 billion, but $6.0 billion of that involved sales between and within the ind ustry's
sectors. This output value represents a 77 percent increase since 2002,8 when the U.S.
fertilizer industry output was $8.5 billion (or combined sector production values of $1 0.5
billion).
The most significant increase in output was seen in the nitrogenous fertilizer manufacturing
sector, which went from representing a third of the industry total to over half. The production
value increase in this sector was not driven by quantity of sales, as plants were actually
closing during that time period, but rather by an increase in prices. The price for a ton of
anhydrous ammonia rose by 100 percent from 2002 to 2006. 9
Value Added
Another measure of the contribution of an industry is its value added, which is the value of an
industry's output that is not created by other industries, but rather through the industry's
productive activities. In 2006, the value added by the fertilizer manufacturing industry was
$3.7 billion. As seen in Figure 1, this represents 22 percent of the output value for the
industry.
Figure 1: Sources of fertilizer manufacturing industry output and value added
Sources of Industry Output Sources of Value Added
Value Added
22%
...
.~-"~.,.~,,
Suppliers ••••-. Employee
78% COmlJensatlon Payments to
-" 41% Self-employed
9%
7 Output is computed as industry outlays (purchases) plus valu8 added. w

It can also be considered as the value of sales
adjusted for changes in Inventories. The output for the fertilizer manufacturing industry is equal to the combined
production values of the individual sectors, adjusted for the sales that occur within the industry. This figure does not
Include potash manufacturing/mining.
8 All percentage manges from 2002 to 2006 are nominal.
9 Data collected by TFI from Green Markets, a publication of BNA Subsidiaries, LLC., and from Fertilizer Week America, a
publication of CRU.
Page 8
Economic Ccmtributions oftheU.S.Fertillzer Manufgcturing IndustrY
The value added by an Industry is returned to its employees and investors and remitted to the
government in the form oftaxes. Of the $3.7 biliion added by the fertilizer manufacturing
industry, over $2 billion was returned to employees in the form of compensation.
Compensation is calculated as the Industry's payroli costs, which include wages, salaries and
benefits.
The value added by the Industry increased by 41 percent during the period from 2002 to
2006. This increase can be compared to the growth in U.S. GOP, which is essentially a sum
of the value added by all industries in the country. The total value added by all industries in
the U.S. economy grew by 26 percent from 2002 to 2006.
Employment
In 2006, the fertilizer manufacturing industry directly employed over 24,800 workers. This
number includes the 1,774 jobs reported by firms in the potash fertilizer sector. The non-
potash jobs in the industry were fairly evenly distributed between the industry sectors, as
shown in Table 2. The compensation per empioyee was considerably higher than the U.S.
average, at $75,701 per employee vs. a U.S. average of $42,636 across industries. These
higher salaries, wages, benefits and other forms of compensation were a resuit of a very high
output per employee ratio. The fertilizer industry generates over $900,000 in output per
worker, which is over six times the U.S. average across industries. These per employee
numbers are even higher if the mixing sector is excluded.
Table 2: Fertilizer manufacturing industry employment and compensation (excluding-Potash)
Nitro anous Phos hatic Mixin Fertilizer Total US Avera e

Employment 7,565 7,411 8,094 23,070
Output per worker $1,359,213 $891,339 $517,173 $913,488 $141,793
Compensation per worker $87,738 $84,484 $56,408 $75,701 $42,636
There is a diverse range of types of jobs in the fertilizer manufacturing industry. There is also
diversity in the size of firms for which the employees work. Table 15 in Appendix B shows the
employment in the fertilizer manufacturing industry by firms' employment size. Employment
in the nitrogenous and phosphatic manufacturing sectors is more centralized than in the
mixing sector. This is due to the large plants in the first two sectors versus the geographically
dispersed mixing facilities, which are located closer to consumption.
---------------
Page 9·
Economic Contributions of the U.S. Fertiiizer Manufacturing Industry
3.2. ADDITIONAL CONTRIBUTIONS
In addition to direct contributions, the industry also provides additional value to the economy
through the secondary impacts of its payments to suppliers, employees, investors and the
government. Suppliers' productive activities result in payments to other suppliers, who in turn
pay other suppiiers. Value distributed to households and government is returned to the
economy through consumption, which is distributed across all industries. These impacts
represent a multiplier effect for all purchases made in a single industry.
In the case of the fertilizer industry, these additional contributions are larger than the direct
contributions. The totai economic contributions of the fertilizer industry in 2006 were $57.8
billion in output and 244,500 jobs, as shown in Table 3.
• assumes potash emp/oment multiplier = phosphatic employment multiplier
The most striking number in the above table is the large number of jobs supported by the
industry that are not considered direct jobs. This high "employment multiplier" is driven by the
exceplionallevel of output per worker and employee compensation in the industry. High
output per worker suggests a significant number of jobs with suppiiers that receive payments
from the fertilizer manufacturing industry. The higher ievels of compensation lead to higher
than average consumption levels by employees.
Page 10
3.3. REGIONAL DISTRIBUTION OF CONTRIBUTIONS
The economic contributions of the fertilizer manufacturing industry can be examined on a

regional level. Contributions were examined for the four regions defined by the U.S. Census
Bureau, as shown in Figure 2.
Figure 2: Regions evaluated for economic contribution
.,
,,;,
""
Table 4 shows the total economic contributions of the fertilizer manufacturing industry by
region. Individual sectors of the Industry tend to be concentrated in sonie regions more than
others. For example, phosphatic fertilizer manufacturing Is naturally more concentrated In
states with phosphate resources, which places a majority of the activity in the South. Despite
the natural tendency to cluster near key natural resource inputs, fertilizer manufacturing
activities as an aggregate occur in all parts of the U.S. The main exception is the Northeast,
which has neither production facilities nor significant amounts of agricultural productivity (only
0.4 percent of U.S. farmland acreage in 2006, according to the USDA) and therefore has
lower contribution levels than the other regions. Additional regional detail is available in
Table 17 of Appendix B.
Table 4: Regional distribution of total economic contributions
Reqion All Nitroqenous PhosDhatic Mixinq

Northeast 9% 8% 9% 12%
Midwest 28% 33% 17% 37%
South 42% 35% 57% 32%
West 21% 24% 18% 18%
Total 100% 100% 100% 100%
Page 11
IOconomicContrlbutlons of the U;S; FertlliLer~Manufacturln(nMlJstry
3.4. DETAIL ON ECONOMIC CONTRIBUTIONS BY TYPE OF FERTILIZER
3.4.1. Nitrogenous fertilizer manufacturing
In 2006, the U.S. nitrogenous fertilizer manufacturing sector (NAICS: 325311) produced a
total economic contribution of $23.7 billion in output and over 80,000 jobs. These
contributions were iocated across the country, but the greatest contributions were reported In
states with either ammonia plants (e.g., Louisiana, Oklahoma) or large wholesalers and
retailers. Table 5 shows the economic contribution of the sector, including a list of the top
contributing states that have ammonia plants.
Table 5: Economic contribution at state and national level, nitrogenous fertilizer manuf.3cturing
(states with plants)
Contribution to state economies

Direct Total
Output Output
(billion) Employment (billion) Employment
Louisiana $0.8 621 $1.3 3,396
Oklahoma $0.8 272 $1.5 4,004
Iowa $0.7 494 $1.3 3,125
Alabama $0.4 297 $0.6 1,855
Other states wi plants $3.3 2,233 $7.2 22,989
States wlout plants $4.3 3,648 $11.8 44,714
US Total $10.3 7,565 $23.7 80,083
For states with ammonia plants, their contributions mirror their shares of total U.S. production
capacity. Table 6 shows the top five states in the United States by ammonia production
capacity in 2006, which account for 66 percent of ail U.S. capacity. Note that these states are
generally iocated near major natural gas production facilities or pipelines.
Table 6: Ammonia plant capacity by state (2006)
·Capacity
State per year' Percent
Louisiana 2,810 24%
Oklahoma 2,590 22%
Iowa 791 7%
Georgia 758 6%
Kansas 694 6%
Others 4,023 34%
Grand Totai 11,666 100%
('Thousand short tons per year)
A second category of states, those without ammonia plants, show high levels of economic
activity that can be attributed to the wholesalers and distributors in those states reporting to
the BLS under the nitrogenous fertilizer manufacturing NAICS code. Ohio Is home to the
Page 12
Economic ContribuJions of the~~U.s. Fertilizer Manufacturing Industry
headquarters for the largest fertilizer wholesalers in the U.S., one of which employs over
1,000 individuals in its headquarters. California and Florida have high levels of agricultural
activity that requires significant fertilizer distribution and manufacturing-related activity, and
thus also have a number of enterprises who identify themselves as being part of the
nitrogenous fertilizer manufacturing sector, albeit without manufacturing capacity per se
within the state. According to the USDA, California's agricultural production represented over
11 percent of the U.S. total in 2007, by value. Both of these states produce fruits and
vegetables that require greater fertilizer application rates than grains and oilseeds.
Table 7: Economic contribution at state level, nitrogenous fertilizer manufacturing (states

without plants)
Direct Contribution Total Contribution

Output Output
billion) Employment billion) Emplo ment
Ohio $2.1 1,470 $3.4 9,256
California $1.5 1,284 $3.2 9,711
Fiorida $0.6 515 $1.3 4,896
One interesting trend to note is the significant increase in economic contribution of this sector
over time. Between 2002 and 2006,· the direct output of the sector increased from $3.1 billion
to $10.3 billion, an increase of 233 percent. This Increase in production value occurred
during a time when ammonia plants were shutting down and the empioyment in the sector
decreased by 13 percent. The increase in value was attributable to a rise in fertilizer prices,
which was driven by an increase in energy and feedstock costs and increased giobal
demand. The contribution of th'ls sector to the U.S. economy was rising, but its share of
giobal supply was simultaneously falling. Thus, despite booming growth in its economic
contribution, the U.S. manufacturing facilities were losing ground to international sources, and
the U.S. was becoming more reliant on imports to meet its needs.
Natural gas represents· 70-90 percent of production costs. The production of one ton of
anhydrous ammonia requires about 32.5 million British thermal units (MMBtu) of natural gas.
In 2002, one MMBtu of natural gas cost customers in the industrial sector $3.94 per MMBtu,
and by 2006, it cost $7.72 per MMBtu. 10 During this time, the average wholesale vaiue of
ammonia increased from $137 to $301 per ton. 11
Given the input share of natural gas, the majority of suppliers to the nitrogenous fertilizer
manufacturing sector are related to producing or delivering natural gas. Table 8 shows the
top ten sectors in terms of input value.
10 EIA natural gas Industrial prices from: }1ltIYlltol1tO.cil)..doe,gQY[dl].l!x/.!l&!'hislln303511s3a.htlll (converted to $/MMBtu).
11 Data collected by TFI from Green Markets, a publication of BNA Subsidiaries, LLC.
Page 13
Table 8: Value added and sector inputs: nitrogenous fertilizer manufacturing
Value (millions) % of Output
Value Added by the sector $2,134 21%
Inputs from sectors not in fertilizer manufacturing industry

Oil and gas extraction $3,500 34%
Pipeline transportation 751 7%
Petroleum refineries 478 5%
Natural gas distribution 301 3%
Management of companies and enterprises 191 2%
Wholesale trade 163 2%
Power generation and supply 123 1%
Scientific research and development services 74 1%
Legal services 48 0%
Truck transportation 45 0%
Other 845 8%
Total $6,518 63%
Inputs from fertilizer manufacturing sectors

Nitrogenous fertilizer manufacturing $1,631 16%
Total $1,631 16%
Sector Ouput $10,282
Page 14
Economic Contributions olthe U.S. FertilizerManufacturing Indust,>! ..
3.4.2. Phosphatic fertilizer manufacturing
In 2006, the U.S. phosphatic fertilizer manufacturing sector (NAICS: 325312) produced a totai
economic contribution of $21.2 billion in output and almost 90,000 jobs. These contributions
were located across the country, but the greatest contributions were reported in states with
either phosphatic fertilizer plants (e.g., Florida, North Carolina) or large wholesalers and
retailers. Table 9 shows the economic contribution of the sector.
Table 9: Economic contribution to state economies, phosphatic fertilizer manufacturing

Direct Total
Output Output
(billion) Emolovment (billion) Emolovment
Florida $3.3 3,666 $6.0 23,690
North Carolina $0.9 1,023 $1.8 6,768
Idaho $0.7 756 $1.1 4,340
Louisiana $0.4 444 $0.9 3,274
Texas $0.3 340 $1.1 5,155
Others $1.0 1,181 $10.2 6,934
US Total $6.6 7,410 $21.2 89,741
The distribution of contribution levels across states closely reflects the distribution of
phosphate mining activity across the United States. This is expected as production facilities
are often collocated with phosphate mines due to the relatively high cost of transporting
phosphate rock versus the cost of transporting derived products. Florida is the key example
as it is the most productive state for phosphate mining and also represents more than half of
the direct contribution for the sector. Table 10 shows the location of phosphate mines in the
United States and the phosphate rock capacities by state. It also shows the capacities by
state for production of wet phosphoric acid, the basic material for producing most phosphatic
fertilizers.
Table 10: Phosphate rock mining and phosphoric acid production by state
Phosphate Rock Wet Phosphoric Acid

Number of
State Mines Capacitv Percent Capacitv Percent
Florida 7 24,300 60% 6,082 58%
North Carolina 1 6,600 16% 1,325 13%
Idaho 3 5,594 14% 863 8%
Louisiana 1,053 10%
Texas 400 4%
Utah 1 4,000 10%
Others 820 8%
12 40,494 100% 10,543 100%
. (capacity in thousand short tons per year)
Page 15
The key suppliers to the phosphatic fertilizer manufacturing sector include mining and
transportation, as shown in Table 11. The mining contribution is expected considering that
over gO percent of phosphate rock mined in the United States is used to produce phosphoric
acid, predominantly used for fertilizer manufacturing. 12 In regards to transportation,
phosphatic fertilizer relies more heavily on the trucking and rail sectors than nitrogenous
fertilizer, which is often shipped in a gaseous or liquid state via pipeline. There are over
7,000 jobs in the trucking sector that are supported by the phosphatic fertilizer manufacturing
sector.
Table 11: Value added and sector inputs: phosphatic fertilizer manufacturing
Value (millions) %ofOutput
Value Added by the sector $755 11%

Other basic inorganic chemical manufacturing 494 7%
Pesticide and other agricultural chemical manufacturing 377 6%
Other nonmetailic mineral mining 303 5%
Oil and gas extraction 176 3%
Rail transportation 89 1%
Other 934 14%
Total $3,686 56%
Inputs from fertilizer manufacturing sectors

Nitrogenous fertilizer manufacturing $1,551 23%
Phosphatic fertilizer manufacturing 613 9%
Total $2,165 33%
Sector Ouput $6,606
12 Jasinski, Stephen M., 2007 Minerals Yearbook: Phosphate Rock, U.S. Geological Survey, August 2008, p.56.i.
Page 16
Economic ContribulionsClftheU .S. Fertilizer ManufaCturing Industry
3.4.3. Potash fertilizer manufacturing
An analysis similar to those for the nitrogenous and phosphatic fertilizer manufacturing
sectors is not feasible for the potash fertilizer manufacturing sector using IMPLAN. Data for
the potash manufacturing sector is buried within NAICS code 32518, Other Basic Inorganic
Chemical Manufacturing. The reason for this is the low number of potash mining facilities in
the country, which causes nondisclosure issues. The government is not permi.Ued to publish
most output and employment data if it can be traced back to particular firms or facilities.
In lieu of publicly available data, a recent survey conducted by TFI was used to determine
that there were 1,774 direct jobs in the sector In 2006. Total jobs can be estimated by using
the direct-to-total jobs ratio, or multiplier, that was caiculated for the phosphatic fertilizer
manufacturing sector. It was determined that this sector was the closest match for potash.
Using the phosphatic multiplier, it was estimated that the potaSh manufacturing sector was
responsible for 21,111 total jobs in the U.S..
Page 17
Economic~Contributions ofthe U,S, Fertilizer Manufacturing Industry
3.4.4. Fertilizer mixing
In 2006, the U.S. fertilizer mixing sector (NAICS: 325314) produced a total economic
contribution of $13.5 billion in output and over 56,000 jobs. These contributions were located
across the country. Table 12 shows the economic contribution of the sector, including a list of
the top contribut'lng states.
Table 12: Economic contribution to state economies, fertilizer mixing

Direct Total
Output Output
(billion) Employment (billion) Employment
Indiana $0.8 1,365 $1.5 5,084
Florida $0.4 781 $0.9 4,205
Texas $0.4 751 $1.0 4,302
California $0.4 717 $1.1 5,427
Ohio $0.2 415 $0.6 2,521
Others $2.1 4,067 $8.4 34,550
US Total $4.2 8,096 $13.5 56,089
The economic activity in the fertilizer mixing sector is more disperse than in the nitrogenous
and phosphatic fertilizer manufacturing sectors. This is because the economic activity in this
sector is not concentrated in large plants, but rather at numerous smaller facilities located
near the cropland where mixed products are consumed. One study estimates that there are
up to 6,000 fertilizer mixing facilities located across the country. 13
The main suppiiers to the fertilizer mixing sector are actually the other sectors within the
fertilizer manufacturing industry. As shown in Table 13, over 53 percent of the output of the
sector results from inputs from the nitrogenous and phosphatic fertilizer manufacturing
sectors. This is expected as mixing operations exist to purchase fertilizers, process them
(mixing), and then sell them to wholesalers or retailers.
13 Adrilenas, Paul and Harry Vroomen, Seven Farm Input Industries, Fertilizer, U.S. Department of Agriculture, September
1990.
Page 18
Economic CClntributionsof tbe I,J.S. F"rtjli""r M~nuf~cturingIndustry
Table 13: Value added and sector inputs: fertilizer mixing
Value Added by the sector $832 20%

Coated and uncoated paper bag manufacturing 107 3%
Stone mining and quarrying 51 1%
Scientific research and development services 40 1%
All other miscellaneous professional and technical 36 1%
Other 421 10%
Total $1,143 27%
Inputs from fertilizer m~nuf~cturing sectors

Nitrogenous fertilizer manufacturing . $1,389 33%
Phosphatic fertilizer manufacturing 821 20%
Total $2,210 53%
Sector Ouput $4,186
Page 19
4. ECONOMIC VALUE OF DOMESTIC FERTILIZER

PRODUCTION
The sizable output, value added, and employment contributions of the U.S. fertilizer
manufacturing industry described in Section 3 exist because the manufacturing occurs
domestically. That is, those specific domestic manufacturing activities drive economic
outcomes in a range of other domestic sectors. For example, jf there were no domestic
nitrogenous fertilizer manufacturing sector due to a complete shift to imports,there would be
a decrease in demand for the U.S. 'oil and gas extraction' sector. These economic
contributions are additional to the enormous value of the fertiiizers themselves in driving
agricultural productivity. The latter could be gained even with 100 percent imported fertiiizers,
as iong as such supplies were cheap and highly reiiabie. However, one can also argue that
the economic contribution of a robust domestic manufacturing capability exceeds the
measurable contributions documented in Section 3 because excessive reliance on imports
could create unacceptable risks for the stabiiity of the supply chain of U.S. agriculture, which
directly accounts for hundreds of billions of dollars of U.S. output, and indirectly contributes to
far more of the U.S. economy.
This additional, unmeasured value can be thought of as a "risk premium." It derives from
several dimensions of supply chain assurance, including fertilizer price stability and iimiting
our nation's dependence on potentially risky international sources of supply.
4.1. LIMITING DEPENDENCE ON UNSTABLE IMPORTS
Excessive reiiance on imports can be an added supply security concern if the non-domestic
sources are in countries that are not generally among the most stable, poiitically or
economically. The United States is already the largest importer of fertilizer in the world, with
more than half of its nitrogen and over 85 percent of its potash coming from international
sources. 14 In the case of potash, this is not a major concern as the majority of imports come
from Canada, a stabie trading partner. However, nitrogenous fertilizer productive capacity is
most likely to increase in naturai gas producing countries - particuiarly those that are not
easiiy able to export their gas to suppiy centers. These countries are not generally
considered to be as politically and economically stable as countries such as Canada.
The top supplier of nitrogen fertilizer products to the United States in 2008 was Trinidad.
Several U.S. firms have production facilities in that country which take advantage of the
relatively cheaper natural gas suppiies. The second largest supplier is Canada. However,
the fastest growing suppliers include Russia and the Ukraine, the top two exporters of
nitrogen in the world. Recent history in the European natural gas markets show that there is
risk in reiying on these countries for a significant share of commodity supply. Another
14 U.S. Department of Agriculture, data from "US Fertilizer Imports/Exports, 2008," E<;onomic Research Service.
Page 20
growing source of imports for the U.S. is Venezuela. Figure 3 shows the increasing level of
U.S. fertilizer imports and their countries of origins.
An unstable U.S. fertiilzer supply would introduce significant risk not just to U.S. agriculture
but, by extension, to the entire world food supply. There is economic value In the continued
presence of a U.S.-based nitrogenous fertilizer manufacturing industry to the extent that it
minimizes reliance on global sources that may one day prove unreliable.
Figure 3: U.S. fertilizer imports from 1998 to 2008

US Fertilizer Imports 1998-2008, by value source: USDA data
5,000
4,000 o Rest of World

DVenezuela
E
(g III Russia & Ukraine
~ 3,000
w iii Canada
c
~ • Trinidad & Tobago
~ 2,000
1,000
o-
199B 1999 2000 2001 2002 2003 2004 2005 2006 2007 200B
4.2. "USE" VALUE OF FERTILIZER
The United States is the third largest consumer of fertilizer in the world, behind China and
India. This fertilizer consumption supports an agriculture industry that produces a large share
of the world's food supply. The agricultural products grown using fertilizer are not only
consumed in the United States, but are also sold into the world markets and delivered to
developing countries as aid. In 2006, 22 percent of U.S. agricultural commodity production
Page 21
Economic Contributions ofthe U.S. Fertiiizer Manufacturing industry
was exported. 15 In 2008, the value of U.S. agricultural exports was $115 billion (compared to
imports of $80 billion, for a trade balance of $35 billion). 16
It is estimated that fertilizers are responsible for between 40 and 60 percent of the world's
food supply.17 A quick calculation shows that if 50 percent of U.S. agricultural production is
dependent on fertilizer, fertilizer use in the United States alone provides an economic value of
up to $300 billion. 18 If even half of the fertilizer is assumed to be domestically produced, that
translates to a domestic "use" value of $150 billion, or 10 times the production value for the
industry. There are obviously very significant assumptions that go into such a calculation, but
it serves to show just how large the economic contribution might be.
The "use" value goes beyond economic value to the U.S. agriculture industry.. In a world
market struggling to keep food supplies apace with growing demand, agricultural products
and fertilizers exported from the United States are important on a humanitarian level. If costs
of U.S. agricultural products are increased as a result of a iess-than-stable U.S. supply of
fertilizers, the economic consequences could be iarge. This. value of the U.S. fertilizer
industry could well exceed the substantial measurable portion of the economic contributions
of domestic fertilizer manufacturing that were estimated in this reporl.
15 "Statistical Abstract of the United States: Table 813: Percent of US Agricultural Commodity Exported; 1990 to 2006." U.S.
Census Bureau. Available at http://www.census.gov/compendia/statabttables/09s0813.pdf
16 Compiled by U.S. Department of Agriculture, Economic Research Service using data from U.S. Census Bureau.
17 W.M. stewart €It aI., "The Contribution of Commercial Fertilizer Nutrients to Food Production," in Agronomy Journal,
January~February 2005, pp.1
18 In the publication Amber Waves, the USDA used SEA statistics to estimate that the agriculture and related industry's share
of the U.S. GOP was 4.8%. This translates to $570 billion.(http://www.ers.usda.gov/AmberWav6s/June06/)
Page 22
Economic Contributions of the U.S. Fertilizer Manufacturing industry
APPENDICES
ApPENDIX A: METHODOLOGY
The goal of this report was to examine the fertilizer manufacturing industry's contributions to
the U.S. economy, with a focus on employment and production value. Basic information and
data about the industry was gathered from various government agencies, industry ,
associations, and academic studies. Commonly accepted methods/tools for determining
economic contributions were used. In order to examine contributions beyond direct
employment and output, IMPLAN was selected as the input-output model of choice.
About IMPLAN19
IMPLAN (IMpact analysis for PLANning) was originaiiy developed by the U.S. Department of
Agriculture Forest Service in 1979 and was later privatized by the Minnesota IMPLAN Group
(MIG). The modei uses the most recent economic data from pubiic sources such as the U.S.
Bureau of Economic Analysis (BEA), the U.S. Department of Labor's Bureau of Labor
Statistics (BLS), and the U.S. Census Bureau. It uses this data to predict effects on a
regional economy from direct changes in employment and spending. Regions., or study
areas, may inciude the entire U.S., states, counties, or muitipie states or counties. Over 500
sectors and their interactions are represented in the data set.
Details of the IMPLAN model can be found in the manual:

http://implan.com/index2.php?option-com docman&task-doc view&gid-66&ltemid-65
Using IMPLAN to determine economic contribution
IMPLAN is designed for running economic impact analyses, which are useful in evaluating
the economic contribution of a sector of the economy. The contribution can be determined by
evaluating the impact of removing the industries' productive activities from the economy and
quantifying the effects on aii sectors combined. The impacts can be broken into three types:
direct, indirect, and induced.
1. Direct - These contributions inciude direct value added by a sector. They include
employee compensation, returns to investors, income on property, and payments
to government.
2. Indirect - These contributions result from the payments to industries that support
and supply a sector. The payments to suppliers lead to payments to other
19 Minnesota IMPLAN Group, Inc., IMPLAN System (1 9xx/20xx data and software), 1725 Tower Drive west, Suite 140,
Stillwater, MN 55082, www.irnplan.com. 1997.
Page 23
____ ~----------"E:.:c:.:o:.:no=-m=ic:..=C-ontributions
of the U.S. Fertilizer Manufacturing industry
suppliers, who pay other suppliers, and so on, in a ripple effect that ends with
leakage out of the region. This leakage mostly occurs through the purchase of
imported goods. These payments to suppliers are transferred to empioyees,
investors and government in a manner similar to the way direct contributions are
distributed.
3. Induced ~ The sector's economic contributions do not end when it prints

paychecks for employees, pays its suppiiers, distributes dividends to its
shareholders or remits taxes to the government. That money is filtered back into
the economy by household and government spending, thus greatly increasing the
contribution of the industry.
For the sake of improving accessibility of this report, the indirect and induced contributions
were not presented separately, but rather as "additional contributions" as a subset of total
contributions.
Industry selection
NAICS codes were identified for the sectors that together constitute the production segment
of the fertilizer value chain. Production was assumed to include mining, manufacturing and
mixing. Focusing on the production sectors leaves out the wholesale and retail sectors of the
industry which were not a focus of this report.
The nitrogenous fertilizer manufacturing, phosphatic fertilizer manufacturing and fertinzing

mixing sectors matched one-to-one with IMPLAN sectors. Mining was accounted for as a
suppiier, but phosphate rock mining, which exists primarily to support phosphatic fertilizer
manufacturing and could be considered part of the fertilizer industry, was not isolated
because IMPLAN aggregates it into a more generic mining sector code ("other nonmetaiiic
mineral mining"). However, iMPLAN data shows that the mining sector does represent a
significant portion of the input into the phosphatic fertiiizer manufacturing sector, and
therefore the output from the phosphate rock mining sector was, to a degree, included in
direct output. The jobs in phosphate rock mining appear in the "total contribution" calculation.
Potash manufacturing (which can also be considered "potash mining;') was also difficult to
isolate. Due to non-disclosure issues related to the low number of facilities, it does not have
its own sector designation in IMPLAN. It is included within "other basic inorganic chemical
. manufacturing." An attempt was made to obtain potash sector data directly from relevant
firms, which is how direct employment numbers were included in the report. This sector had
at least some of its output included as part of the phosphatic fertilizer manufacturing sector
and the fertilizer mixing sectors; however any output that was not sold within the industry was
not included in the contributions.
Adjustments for double counting
When evaluating the contribution of an industry that consists of multiple sectors, special
attention must be paid to avoid double counting the economic activity that exists between
Page 24
those sectors. The fertilizer industry is no exception. There are significant intra-industry, and
even intra-sector, sales. These were removed from the combined output calcuiation. This
double counting is not an issue in direct employment because those numbers come directly
from a public data source and aii occur within the respective sectors. Total contributions
were also adjusted to prevent double counting.
Regional analysis
IMPLAN data is available at the national, state and county levels. This analysis not only
examined economic contributions at the national level, but also contributions to each of the
50 states and the District of Columbia. State-level contributions were calculated as not oniy
the contributions from in-state fertilizer industry activity, but also the activity in each state
supporting fertilizer activity in aii other states. Induced contributions in each of the states led
to a more even distribution of contributions across the country. The state level modeling
allowed for the regional analysis, the ranking of states by contribution, and the state analyses
for Louisiana and Florida.
Page 25
Economic Contributions ofthe U.S. Fertilizer Manufacturing industry
Official NAICS definitions for the sectors in the fertilizer manufacturing industry (as
listed by the NAICS association (website: http://www.naics.com/search.htm)
NAICS 325311: Nitrogenous Fertilizer Manufacturing: This U.S. industry (sector)

comprises establishments primarily engaged in one or more of the following: (1)
manufacturing nitrogenous fertilizer materials and mixing ingredients into fertilizers; (2)
manufacturing fertilizers from sewage or animal waste; and (3) manufacturing
nitrogenous materials and mixing them into fertilizers.
Ammonia, anhydrous and aqueous, manufacturing

Ammonium nitrate manufacturing
Ammonium,sulfate manufacturing
Anhydrous ammonia manufacturing
Fertilizers, mixed, made in plants producing nitrogenous fertilizer materials
Fertilizers, natural organic (except compost), manufacturing
Fertilizers, of animal waste origin, manufacturing
Fertilizers, of sewage origin, manufacturing
Nitric acid manufacturing
Nitrogenous fertilizer materials manufacturing
Plant foods, mixed, made in plants producing nitrogenous fertilizer materials
Urea manufacturing
NAICS 325312: Phosphatic Fertilizer Manufacturing: This U.S. industry (sector)

comprises establishm'ents primarily engaged in (1) manufacturing phosphatic fertilizer
materials or (2) manufacturing phosphatic materials and mixing them into fertilizers.
Ammonium phosphates manufacturing
Defluorinated phosphates manufacturing
Diammonium phosphates manufacturing
Fertilizers, mixed, made in plants producing phosphatic fertilizer materials
Phosphatic fertilizer materials manufacturing
Phosphoric acid manufacturing
Plant foods, mixed, made in plants producing phosphatic fertilizer materials
Superphosphates manufacturing
NAICS 325314: Fertilizer Manufacturing, Mixing Only: This U.S. industry (sector)
comprises establishments, primarily engaged in mixing ingredients made eisewhere into
fertilizers.
Compost manufacturing
Fertilizers, mixed, made in plants not manufacturing fertilizer materials
Mixing purchased fertilizer materials
Nitrogenous fertilizers made by mixing purchased materials
Phosphatic fertilizers made by mixing purchased materials
Potassic fertilizers made by mixing purchased materials
Potting soil manufacturing
Page 26
ApPENDIX B: ADDiTIONAL DATA TABLES
Table 14: Top three countries in fertilizer activity: consumption, production, imports
and exports
IAII Fertilizer Nitronen Phosohorus Potash

Consumption
1 China China China China
2 India India India United States
3 United States United States United States Brazil
Production .
1 China China China Canada

2 United States India United States Russia
3 Russia United States India Belarus
Imports
1 United States United States Brazil China
2 China China India United States
3 Brazil Brazil ChIna Brazil
Exports
1 Russia Russia United States Canada
2 Canada Ukraine Russia Russia
3 United States Canada China Belarus
Source: The Fertilizer Institute. Global Industry at a Glance, 2005-2006.
Page 27
EGonomicContributionsof the U.S.'Fertilizer Manufacturing Industry
Table 15: Employment by firm employment size
Nitrogenous Fertilizer Manufacturing Phosphatic Fertilizer Manufacturing

1%
19%
89%
Fertilizer (Mixing Only) Manufacturing
Firm Size
1.1 < 20 employees
20~500 employees
.500 + employees
48%
Source: 2006 County Business Patterns, U.S. Census Bureau.
Page 28
EC(lnomicContributi(lns (lfthe U,S, Fertilizer Manuf~cturing Industry
Table 16: Region definitions
Reaion name Division name State

Connecticut
Maine
Massachusetts
New England
New Ham shire
Northeast Rhode Island
Vermont
New Jersev
Mid-Atlantic New York
Pennsvlvania
Illinois
Indiana
East North Central Michioan
Ohio
Wisconsin
Iowa
Midwest
Kansas
Minnesota
West North Central Missouri
Nebraska
North Dakota
South Dakota
Delaware
District of Columbia
Florida
Georaia
South Atlantic Marvland
North Carolina
South Carolina
Virainia
South West VirQinia
Alabama
Kentuckv
East South Central
Mississippi
Tennessee
Arkansas
Louisiana
West South Central
Oklahoma
Texas
Arizona
Colorado
Idaho
Montana
Mountain
Nevada
New Mexico
West Utah
Wvomina
Alaska
California
Pacific Hawaii
Oreoon
Washinoton
Page 29
. Economic Contributions of the U.S. Fertilizer Manufacturing Industry-
Table 17: Regional distribution of economic contributions, by census division
Division All . Nitroqenous Phosphatic Mixina

New England 1% 4% 2% 3%
Mid-Atlantic 3% 11% 7% 9%
East North Central 19% 18% 8% 23%
West North Central 7% 11% 9% 14%
South Atlantic 29% 14% 41% 15%
East South Central 5% 5% 4% 5%
West South Centra 15% 15% 12% 12%
Mountain 8% 7% 10% 6%
Pacific 14% 16% 8% 12%
Total 100 0Yo 100% 100% 100%
Pacific. Nnweng.land
Co'nflguou.•
Mountflin
We-l)t North Contral
East North Cn-ntral
J Middle Atlantic::
.r,"_~E
MD
q
Pacific
HI t eaBt South Conttal
Noncomiguous
Wo.st ,South Contrat
Page 30
_ _ _ _ _ _ _ _ _ _ _ _ _-=E::;c::o.:.;n=o.m=ic'-C=on:..t::.;ri=.bu=.t::.;io::.n::s'-'o::.f::th:..e:..U.S. Fertilizer Manufacturing Industry
Table 16: Ammonia plant capacity by state
(thousand shorl tons per year)
State Capacity Percent

Louisiana 2,810 24%
Oklahoma 2,590 22%
Iowa 791 7%
Georgia 758 6%
Kansas 694 6%
Ohio 648 6%
Virginia 584 5%
Texas 540 5%
Mississippi 500 4%
North Dakota 391 3%
Illinois 306 3%
Nebraska 292 3%
Alaska 280 2%
Wyoming 196 2%
Alabama 175 2%
Oregon 111 1%
Grand Total 11,666 100%
Source: North America Fertilizer Capacily, International Genter for Soil Fertility and Agricultural
Development (IFDG), December 2008.
Page 31
Table 19: World phosphate mine production, reserves, and reserve base (2005)
millions of metric tons

Currently
Economic
Demonstrated Recoverable Mine production
Countrv Reserves Reserves 2005 2007
United States 3,400 1,200 38.3 29.7
Morocco and Western Sahara 21,000 5,700 28.0 27.0
China 13,000 6,600 .26.0 45.4
South Africa 2,500 1,500 2.0 2.6
Jordan 1,700 900· 7.0 5.5
Australia 1,200 77 2.0 2.2
Russia 1,000 200 11.0 11.0
Israel 800 180 3.2 3.1
Syria 800 100 3.0
Egypt 760 100 2.2 2.2
Tunisia 600 100 8.0 7.8
Brazil 370 260 6.4 6.0
Canada 200 25 1.0 0.7
India 160 90 1.2 1.2
Senegal 160 50 1.8 0.6
Togo 60 30 1.1 0.8
Other countries 2,000 800 4.9 10.6
World total 50,000 18,000. 148.0 156
Source: U.S. Geological Survey, Mineral Commodify Summaries, January 2006.
Page 32
Economic Contributions of the-U.S. Fertilizer Manufacturing-Industry
ApPENDIX C: STATE-LEVEL FOCUS
4.2.1. Louisiana
The state of Louisiana ranks first among states with ammonia plants in terms of economic
contributions of the fertilizer manufacturing industry. In 2006, the direct economic
contributions of the fertilizer manufacturing industry in Louisiana totalled $1.3 billion in output
and over 1,100 jobs. The total economic contributions, which include additional contributions
such as impacts on suppliers and spending by employees, were $2.4 billion and over 7,300
jobs. Table i shows the direct and indirect contributions of the fertilizer manufacturing
industry to the state of Louisiana. The contributions are presented for each sector in the
industry, with the exception of potash, which was not included in this analysis due to lack of
suffficient data.
Table I: Fertilizer manufacturing industry economic contributions to Louisiana

(excluding Potash)
Output Direct Contribution Total Contribution
Louisiana total (j/o of US total US rank multiDfier Louisiana total % of US total

Nitrogenous Fertilizer Manufacturing $833 8% #1* 1.6 $1,323 6%
Phosphatic Fertilizer Manufacturing 401 6%, #4 2.2 902 4%
Fertilizer Manufacturing; Mixing Only 39 1% #27 5.2 202 2%
Total $1,273 6% $2,427 4%
Employment Direct Contribution Total Contribution
Louisiana total % of US total multinfier Louisiana total % of US total

Nitrogenous Fertilizer Manufacturing 603 8% 5.6 3,397 4%
Phosphatic Fertilizer Manufacturing 444 6% 7.4 3,274 4%
Fertilizer Manufacturing, Mixing Only 76 1% 9.1 689 1%
Total 1,123 5% 7,360 3%
* ranks first among states wI ammonia plants
Additional data on the fertilizer manufacturing industry's direct employment in Louisiana is

proVided in Table II. The tabie shows employment by sector, including output and
compensation per employee.
Table II: Louisiana's fertilizer manufacturing industry employment and compensation

(excluding Potash)
Fertilizer Louisiana
Nitro enous Phosphatic Mixin Total Avera e
Employment 603 444 76 1,123
Output per worker $1,382,792 $902,970 $509,229 $1,133,961 $167,671
The industry's compensation per employee was considerably higher than the Louisiana
average, at $108,535 per employee vs. a Louisiana average of $37,112 across industries.
Page 33
These higher salaries, wages., benefits and other forms of compensation were a result of a
very high outpui per employee ratio. The fertilizer industry in Louisiana generates over $1.1
million in output per worker, which is over seven times the Louisiana average across
industries..
The significant economic contributions of the fertilizer manufacturing industry in Louisiana are
primarily the result of the productivity of the ammonia plants within the state. In 2006, the
state had the greatest ammonia piant capacity in the country, with 24% of the US total. While
the majority of plant capacity is located in Ascension Parish, there are economic contributions
throughout the state, especially through supplying industries and the spending by employee
househoids. Table III shows the value added and sector inputs into Louisiana's nitrogenous
fertilizer manufacturing sector.
Table III: Value added & sector inputs: Louisiana's nitrogenous fertilizer
manufaciurlng sector
Value Added by the sector In Louisiana $166 20%
Inputs from outside Louisiana $438 53%
Inputs from Louisiana's sectors not in fertilizer manufacturing Industry

Oil and gas extraction $49 6%
Petroleum refineries 34 4%
Pipeline transportation 23 3%
Natural gas distribution 12 1%
All other miscellaneous professional and technical 4 1%
Legal services 3 0%
Other 32 4%
Total $183 22%
Inputs from Louisiana's fertilizer manufacturing sectors

Nitrogenous fertilizer manufacturing $46 5%
Total $46 5%
Sector Ouput $833
Page 34
_. Economic Contributions of theU.S.-FertHizer Manufacturing Industry
4.2.2. Florida
The state of Florida ranks first among states in terms of economic contributions of the
phosphatic fertilizer manufacturing sector. Over half of the direct output in the US from this
sector is produced in Fiorida. In 2006, the direct economic contributions of the entire fertHizer
manufacturing industry in Florida totalled $4.3 billion in output and almost 5,000 jobs. The
total economic contributions, which include additional contributions such as impacts on
suppliers and spending by employees, were $8.2 billion and over 32,800 jobs. Table IV
shows the direct and indirect contributions of the fertHizer manufacturing industry to the state
of Florida. The contributions are presented for each sector in the industry, with the exception
of potash, which was not included in this analysis due to iack of suffficient data.
Table IV: Fertilizer manufacturing industry economic contributions to Florida

(excluding Potash)
Output Direct Contribution Tolal Contribution
Florida tolal % of US total US rank multiDlier Florida tolal % of US tolal

Nitrogenous Fertillzer Manufacturing $627 6% #6 2.1 $1.290 5%
Phosphatic Fertilizer Manufacturing 3,292 50% 1/1 1.8 5.971 29%
Fertilizer Manufacturing, Mixing Only 412 10% #2 2.2 896 7%
Total $4.331 21% $8,157 14%
Employment Direct Contribution Total Contribution
Florida total % of US tolal US rank multfDller Florida tolal % of US total

Nitrogenous Fertilizer Manufacturing 515 7% 9.5 4.904 6%
Phosphatic Fertil1zer Manufacturing 3,666 49% 6.5 23,690 27%
Fertilizer Manufacturing, Mixing Only 781 10% 5.4 4,205 8%
Total 4,962 20% 32,798 13%
Additional data regarding the fertilizer manufacturing industry's direct employment in Florida
is provided in Table V. The table shows employment by sector, including output and
. compensation per employee. Not that the direct employment totals do not include jobs in
supporting industries (such as phosphate mining), which are accounted for in total
employment.
Table V: Florida's fertilizer manufacturing industry employment and compensation

(excluding Potash)
Fertilizer Florida
Nitro enous Phosphatic Mixin Total Avera e
Employment 515 3,666 781 4,962
Output per worker $1,217,409 $898,025 $528,240 $872,994 $115,357
Page 35
The compensation per employee was considerably higher than the Florida average, at
$96,897 per empioyee vs. a state average of $38,537 across industries. These higher
salaries, wages, benefits and other forms of compensation were a result of a very high output
per employee ratio. The fertilizer manufacturing industry in Florida generates over $870,000
in output per worker, which is almost 8 times the Florida average across industries.
The significant economic contributions of the fertilizer manufacturing industry in Florida are
largeiy attributable to the phosphatic fertilizer manufacturing in the state, which in turn is a
resuit of the state's economicaily accessible deposits of phosphate. In 2006, 60% of the
phosphate rock mining, capacity in the country was located in Florida. While the majority of
plant capacity is located in central Florida, there are economic contributions throughout the
state, especiaily through supplying industries and the spending by employee households.
Tabie Vi shows the value added and sector inputs into Florida's phosphatic fertilizer
manufacturing sector.
Table VI: Value added & sector inputs: Florida's phosphatic fertilizer manufacturing
sector
Value Added by the sector in Florida $397 12%
Inputs from outside Florida $1,651 50%
Inputs from Florida's sectors not in fertilizer manufacturing industry

Truck transportation $298 9%
Oil and gas extraction 42 1%
Rail transportation 39 1%
Ail other misceilaneous professional and technicai 28 1%
Pesticide 'and other agriculturai chemical manufact 22 1%
Other 243 7%
Total $973 30%
Inputs from Florida's fertilizer manufacturing sectors

Phosphatic fertilizer manufacturing $139 4%
Nitrogenous fertilizer manufacturing 132 4%
, , Total $271 8%
Sector Ouput $3,292
Page 36
FINANCIAL
SERVICES
FORUM
January 19,20 II
Darrell E. Issa
Chairmnn
United Stnte House of Representatives
2157 Rnybul'llI-)ouse office building
Wnshington, DC 20515-6143
Denr Chainnnn Issa,
Thank you for your letter of December 10,20 I0 regarding your request for assistance in
identifying existing and proposed regulations that negatively impact the U.S. economy and job
creation. The Financial Services Forum.is of the view that accelerating economic growth and job
creation should be our nation's topic domestic prioritics. We appreciatc thc focus and energy
that you have brought to this critical effort.
As you may know, the Forum is a financial and economic policy organization comprised
of the chief executives officers of20 of the largest financial institutions with operations in the
United States. Issues comprising the Forum"s recent policy agenda include: reform and
modernization of the U.S. fmmewOI'k of financial supervision; enhancing the competitiveness of
U.S. capital markcts; educating policymakers regarding the importancc of private capital in
fueling economic growth and development around the world; prescrving the 50-year consensus
for free trade by promoting polieies that help more Americans participate in the gains of
globalization; financial sector model'llization and cxpanded market aecess in China; and
encouraging cross-bordei' investment and the free flow of eapital.
Responding to your request, the attaehed doeumcnts were provided by a few members of
the Forum. [n forwarding these observations to you, the Forum wishes to emphasize that these
provided comments and observations may not reflect thc collective view of all 20 members of
the FOl'llm.
As a general comment, regulatory uncertainty remains a major obstacle to greater lending

and investment and, therefore, faster economic growth and job creation. With specific regard to
the financial services sector, significant uncertainty persists stemming principally from still-
emerging new requirements with regard to capital nndliquidity, as well the hundreds of new
regulations being written by financial regulators to implement the Dodd-Frank Act. How these
regulntions nre written will have a tremendous impact on the stability, profitability, innovative
capacity, and competitiveness of the financinl sector - and, therefore, on the availability of the
cnpital and credit thnt American businesses depend on to invest, grow, and create jobs.
2
Again, thank you for the opportunity to contribute to your important efforts. Please let
me know if you have any questions about the attached comments.
Sincerely,
R~~ tJ\,~~
Prcsidcnt and COO
Insnrllllce for the 21st century
By: Petcr Ludgin

Dcccmbcr 27,201004:32 AM EST
Insurancc regulation is in dire need of an overhaul. Agents and brokers, as well as thc consumers
they serve, arc shortchanged by anllnliquated st'llc-base~1 system, whose patchwork model is
inefficient and costly.
The 56 state-based insurance bureaucnlcies (including the five territories lind Washington) that
regulate today's insurance mllrkct compel producers to jump throngh various hoops to serve
customers - including barriers to entry, a lack of portability and price controls.
This system is a vestige of the 19th century, when states regulnted most domestic commerce. The
Suprcme Court ruled in 1868 that in,unlnce was not interstate commcrce, giving states primnry
jurisdiction, whicb they maintain today.
Yet state-based insurance regulation cnn be discordnnt - creating onerous costs, redundant forms
and headaches 1'01' producers, insurers and the consumers they serve.
The state-based system often lacks Ilexibility. For exnmple, longtime customers, who move out
of state, cannot continue with their familiar financial advisor in rl seamless fashion. In addition,
consumers do not understand why an annuity, long term care, disnbility Dr life policy is available
in one state, but not another.
This state-bnsed system can serve ns a barrier to entry. It prevents products from being
introduced in a timely fashion. And marketing to potentinl customers out of stnte, without n non-
resident license, is forbidden.
Reformers support bipartisan legislation to address licensure hnssles, specd to mnrket issues and
price co'ntrols by creating an optional federal charter. However. many opponents view this as a
thrcat to their mnrket shnre. In cffect, thcy nre opposed to ndditional competition. How docs this
help consumers? It doesn't.
Choice. competition and open markets are what help consumers. During the health care debate
tbe issue of portability - selling products across state lines-was considered. In the Pledge to
America. Republican leaders would allow individuals to buy health care coverage outside the
strite they live in. In many ways. these issues overlap.
Some supporters of the optional federal charter seek the elimination of price controls. saying that
competitive market forces - good. old-fashioned competition - should determine the prices and
(erms of products.
For example. Illinois has allowed free market pricing since 1971. As a result, there are several
hundred compllIlies now competing in this market. States with price controls have far fewer
options I()r their residents.
Unfortunatcly, the new Dodd-Frank Wall Street reform bill docs not address these issues, But it
does create a Federal Insurance Office, whosc director is required to issue a report to Congress
"on how to mode1'llize and improve the system of insurance regulation." This new office must
tackle these matters,
S\lpporters of an optional federal charter are not advocating the annihilation of the state
regulatory systcm. Producers and insurers would have a choice to stay within the stale-bascd
system - or oj)t into a federal regulalory structure. We must protect against dual regulation.
An optional fcderal charter is not abmll less regulation - but better, efficicnt and consistcnt
rcgulation ncross nil stntcs for all consumers.
The politics behind this issue are tricky - nt stake is turf, revenue nnd mnrket shnre, Howcver,
supporters of this optional ehnrtcr and 11l0dc1'llization are on the right side of this policy proposal.
Peter Llnlgin is Ihe execl//il'e director (!I'Agent,\'f(n' Change, a gl'llss·rlJo/s trade assaria/ion 4
insl/l'llnce agents and bl'Okersfj'OII/ across all lines (~r il/sl/l'lll/ce
Insurance Issues Stemming From.Dodcl-Frank
Appointment of Director
The Director for the new Feclerallnsurance Office (FlO) created by Title V, Section
502(a)(3) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 should be a person who has insurance experience and who is commilled to
and capable of creating competitive marllets that benefit of Insurance consumers.
Candidates must not simply be evaluated on their willingness to proliferate regulation
orpenalize Industry palticipants.
The new FlO Director must also be capable of representing the U.S. and developing
federal policy on internationai insurance mailers. This authority should exercised in a
manner that ensures equitable treatment of domestic and foreign insurers and
promotes job innovation and growth in the U.S. markets.
One of the first tasks of the new Director will be to conduct a study and to submit a
repolt to Congress on how to modernize and improve the system 01 Insurance
regulation in the U.S. This report will require the Director to be objective and
impartial when evaluating the effectiveness and efficiency of state regulation. For
this reason, it is imperative that the Secretary avoid appointing a person who has
staunchly defended state regulation or who will perceive any criticism of state
regulation as a critique of his or her past record.
Designation of Systemically Important Non-Bank Financial Company
The new FlO Director will have the authority to recommend to the FSOC that an
insurer be designated as systemically important. The criteria for such consideration
have not yet been promUlgated. Nonetheless, any company designated for
heightened oversight by the FSOC will suffer from a competitive disadvantage.
For this reason, the FlO Director must exercise this authority In very limited
circumstances. Furtl1ermore, there must be some checks and balances on this
authority to ensure t11at it is not used as a political lever agalhst industly members.
At a minimum, there should be an appeal process whereby companies can challenge
the findings of the Director before the recommendation Is formally presented to the
FSOC.
Underserved communities, minol'ities and low and moderate income persons
The FlO Act directs the FlO to monitor, and presumably report, the extent to which
traditionally underserved communities, minorities and low and moderate income
persons have access to affordable Insurance products regarding all lines of
insurance. The premise of this section of the FlO may be flawed. To our knowledge
Congress did not present any findings that suggest that the groups listed In the
subsection are underserved. It will be imperative that the FiO work with the industry
to understand the business of Insurance and the need to charge actuarially
appropriate rates to maintain vibrant and competitive markets for all insurance
consumers,
Data Collection: Minimum Company Size Threshold
The FlO Act authorizes the FlO to collect data from insurers to carry out its
functions, It further directs the FlO to establish a minimum size threshold beneath
which Insurers would be exempt for the requirement to submit data to the FlO,
First, we urge the FlO to exercise its data collection powers judiciously and to avoid
placing unnecessary and duplicative reporting burdens on companies, Second, we
believe that, in order for tile FlO to have a complete understanding of the insurance
marketplace, the FlO must collect data from the entire Insurance marketplace, This,
of course, requires data collection from the thousands of "small" insurers writing
business in the U.S.
Furthermore, the costs of responding to data calls can be disproportionately 111gh for
larger insurers. These additional costs will create a competitive advantage for those
insurers who are excepted from these data calls, Therefore, we urge the FlO to
issue no threshold for data collections, In the alternative, we believe very low
threshold is necessary to allow the FlO gain a full understanding of the market'place
and maintain a competitive.level playing field,
FlO Study and Report
Regarding the repol1s the FlO Director is required to produce for Congress, active
engagement with the insurance industry during the drafting process is important. The
reports include one on improving U.S. insurance regulation and another on the
breadth and scope of the global reinsurance market and the critical role the market
plays In supporting insurance in the U,S. Making sUI'e these reports incorporate
industry input and provide objective analysis of these respective issues is key.
Department of Labor Initiative Regarding Definition of "Fidnciary"
The Department of Labor ("DOL") recently issued a proposed rule that would redefine
the term "fiduciary" with respect to retirement plans andIRAs. The proposed regulation
would greatly expand the definition of a fiduciary, so that many more entities and
individuals would be fiduciaries.
It is important to note that the existing regulatory definition has been in place since 1975
and the statute has not changed.
II' a person is a fidueiary with respect to retircmcnt plans and IRAs, thc pcrson is
gencrally prccluded from giving any advicc that could have any effect on the person's
compensation. So, for example, many routine transactions pcrl'ormed by a broker or
dealer would become illegal unless completely restructui·ed. This has caused grettl
concern among the investment community, since the result of the new regulation would
appcar to be an enOl"ll1O\IS restructuring of an entire industry without any basis in the
record of a necd for restructuring. And therc would bc a corrcsponding decrease in
investment information being provided to investors, as advisors seek to insulate
themselves from the enormous new Iiahilitics creatcd by thc rcgulation.
DOL is moving forward despite a similar initiative by the SEC, which focuses
appropriately on disclosure. The unfortunatc and vcry disruptivc rcsult could be that
brokcr/dealcrs would be subjcct to two sets of inconsistcnt rulcs, creating unnecessary
costs and confusion for thcm and their customers.
Thc costs associatcd with industry restructuring and compliance with inconsistcnt rules
will only scrve to drain resources from the creation of new jobs and the stimulation of the
economy. Thc decreasc in the invcstmcnt information available to investors will also
undermine both savings and investment in the ceonomy, At a minimum, the DOL and
SEC should coordinate on a single fiduciary rule.
Definition of "FiduciaQC
The Department of Labor ("DOL") recently issued a proposed rule thal would redefine
the term "fiduciary" \vilh respect to retirement plans and IRAs. The proposed rcgulation
would greatly expand the definition of a fiduciary, so that many more eutiLies ami
individuals would be fiduciaries.
It is important to note that the existing regulatory definitiou has been in place since 1975
and the statute has not changed.
[I' a person is a fiduciary with respect to retirement plans and IRAs. the person is
genel'lllly precluded from giving any advice that could have any effect on the person's
compensation. So. for example, many routine transactions performed hy a broker or
dealer would become illegal unless completely restructured, This has caused great
concern among the investment community. since the result of the new regulation would
appear to be an enormous restructuring of an entire industry without any basis in the
record of a need for restructuring. And there would be a corresponding decrease in
investment information being provided to investors. as advisors seek to insulate
themselves from the enormous new liabilities created by the regulation.
DOL is moving forward despite a similar initiative by the SEC. which focuses
appropriately on disclosure. The unfortunnte and very disruptive result could be that
broker/dealers would be subject to two sets of inconsistent rules. creating unnecessary
costs and confusion 1'01' them'and their customers.
The costs associated with industry restructuring and compliance with inconsistent rules
will only serve to drain resources from the creation of new jobs and the stimulation of the
economy. The decrease in the investment information available to investors will also
undermine both savings and investment in the economy. At a minimum, the DOL and
SEC should eoorclinate on a single Fiduciary rule.
·__TREFlNANCIALSERVICESROUNDTABLE-Q. - -1001-PENNSYLVANIA-AVE;,-NW -
Financing America :~, l!.col1omy • Surm 500 SOUTH
WASI-IlNG'l'ON, DC 20004
TEL 202-289-4322
FAX 202-628-2507
E-Mail iofo@fsround.org
www fwlIInd pn'
January 19,2011

Chairman
Dear Chairman Issa:
The Financial Services Roundtable (the "Roundtable") appreciates the opportunity to provide
you with our comments regarding cunent and contemplated federal regulations thatnegatively
impact our economy and job growth. Presently, the Roundtable is focused on implementation
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").
We are committed to make the regulatory changes that follow from the Dodd-Frank Act work
for the American economy. The Roundtable, however, remains concerned that certain
regulations, as outlined below, must be implemented with the restraint required by the Act, in a
commercially reasonable manner, and that they not go beyond the original intent of Congress.
The Financial Services Roundtable represents 100 of the largest integrated financial services
companies providing banking, insurance, and investment products and services to the
American consumer. Member companies pmticipate through the Chief Executive Officer and
other senior executives nominated by the CEO. Roundtable member companies provide fuel
for America's economic engine, accounting directly for $74.6 trillion in managed assets, $1.1
trillion in revenue, and 2.4 million jobs.
Parmnount among the Roundtable's concerns with the Dodd-Frank Act is the debit interchange
fee restrictions (the "Durbin Amendment") contained within Section 1075. Interchange fees
are the fees merchants pay to cm'd issuing banks to' have the ability to accept card payments.
The Dodd-Frank Act compels the Federal Reserve Board (the "Board") to regulate interchange
fees through price controls. The Durbin Amendment, and the subsequent Board proposed rule,
falls substantially short of capturing the costs associated with providing the debit service. Left
unaltered, these proposed rules will not only drastically change the way consumers are
accustomed to paying for goods and services, but will threaten the safety and soundness of well
capitalized financial institutions that participate in the payment system.
The Board's proposal would remove an estimated $15 billion dollars from the financial
services marketplace. This significant reduction will require higher fees to be paid by
consumers, negatively impact lending, and may ultimately lead to a reductio'n ofjobs in the
financial services industry and the broader economy. The Durbin Amendment's unprecedented
shift of resources from one industry to another, Witllout a clear and direct benefit to consumers,
1
--will hurt small businesses-and consumers-inthe long-run. Additionally, a slowdown in- -
innovation and lack of competition among debit card issues could lead to increased use of less
efficient payment systems such as cash or checks, which could ultimately negatively impact
consumer spending and the economy as a whole. '
The Roundtable is, also, closely tracking implementation of Section 619 of the Dodd-Frank
Act that sets forth the new Section 13 of the Banking Holding Company Act of 1956
(commonly referred to as the "Volcker Rule"). As its preamble provides, the Dodd-Frank Act
was intended to "promote the financial stability of the United States" and to respond to
particular risks to that stability, such as the "too big to fail" problem and "abusive" financial
services practices. The Dodd-Frank Act was not intended to punish the financial services
industry nor to stifle the ability of the industly to provide products and services to meet market
demands. As a result, we have asked the regulators to not interpret the Volcker Rule to extend
beyond what Congress intended. In this manner, the regulations would meet the mandate of
the Dodd-Frank Act and minimize the risk of impairing financial institutions' ability to fulfill
their crucial role of supporting financial stability and the U.S. economy.
The Volcker Rule was not intended to supplant or overlay well-established regulatory regimes
that have proved to be effective and have not been implicated by the recent finanCial crisis,
such as ERISA and insurance regulation. Unintended consequences and harm to safety and
soundness would result by applying the Volcker Rule beyond its statutory intent. Traditional
banking, fiduciary, investment and insurance activities, as well as the manner and structures
through which such activities are conducted, should remain subject to traditional safety and
soundness principles and other similar regulations that already appropriately and effectively
regulate them.
Additionally, we have encouraged regulators to closely examine the equality of competitive

opportunity afforded to banking organizations formed under the laws of the United States
compared to non-U.S. banking organizations The Volcker Rule expressly permits non-U.S.
banking entities to conduct activities outside of the United States that would otherwise be
prohibited by the Volcker Rule. u.S.-based banking organizations and their subsidiaries have
no such authority with respect to their non-U.S. operations. Because this divergent treabnent
necessarily subjects similarly situated globally-active banking organizations to different
standards and limitations, regulators should implement the Volcker Rule with a careful eye to
avoid disadvantaging U.S.-based banking organizations that are active globally, as compared to
their non-U.S. competitors. Unless similar flexibility can be applied to the non-U.S. activities
of globally-active U.S. banking organizations, applying significant limitations to the business
of U.S. banking organizations will hinder their ability to compete globally, while contributing
'little to the goal of system-wide financial stability towards which the Dodd-Frank Act and the
Volcker Rule are directed.
As it relates to the new Consumer Financial Protection Bureau (the "Bureau"), the Roundtable
has advocated for strong, rational consumer protection standards and enforcement that
emphasize safe harbor, uniform national standards, uniform disclosures for all agencies,
enforcement for non-regulated companies, and quantifiable standards. While the Bureau has
not yet proposed any new regulations, we remain concerned that the manner in which the
2
Bureau chooses to use its sweeping powers to write and enforce consumer financial regulations
could have a significant adverse effect onjobs and the economy.
Experience with regulations recently issued under the Credit Card Accountability
Responsibility and Disclosure Act of 2009 has shown that increasing the cost and risk of
extending consumer credit results in a reduction of the amount of credit extended, a nan'owing
of available options, and increases the price of credit with resulting adverse ripple
effects on economic activity and job growth. Regulations issued by the Bureau that limit
innovation, reduce consumer choice and fail to take account of market forces are likely to
adversely impact the economy and jobs. One study on The Effect ofthe Consumer Financial
Protection Agency Act of2009 on Consumer Credit (attached) found that, under conservative
assumptions, actions by the Bureau could increase the interest rates consumers pay by at least
160 basis points; reduce consumer borrowing by at least 2.1 percent; and reduce the net new
job creation by 4.3 percent. We are hopeful that through responsible implementation and
vigorous oversight of this new agency these numbers will not become a reality.
Finally, Section lIS of the Dodd-Frank Act, which outlines "enhanced prudential standards,"
has the potential to negatively affect job creation and economic recovery by maldng credit less
available and more costly. These new standards are intended to mitigate risk to financial
stability and would apply to systemically important nonbank financial firms to be designated
by the Financial Stability Oversight Council (the "FSOC") and to bank holding companies
with assets over $50 billion. The "standards," which are to be implemented by the Federal
Reserve Board, include risk-based capital requirements, leverage limits, liquidity requirements,
resolution plan and credit exposure report requirements, concentration limits, a contingent
capital requirement, enhanced public disclosures, short-tenn debt limits, and overall risk
management requirements. The Roundtable believes increased capital standards, beyond what
is required for safety and soundness, will directly retard the growth of credit availability and
increase its cost, which will make it harder and more costly for businesses to borrow, thus
making job creation more difficult. Similarly, overly strident liquidity requirements will
reduce the amount ofloans available, as they are comparatively illiquid assets, and negatively
impacting economic growth.
We thank you for the opportunity to comment on proposed regulations, specifically the Dodd-
Frank Act, and their potential negative impact on the financial services sector, job creation, and
the larger economy. We stand ready to work with you and your staff as you conduct oversight
of these important issues. .
Best regards,
Steve Bartlett
President and CEO
3
School of Law
THE EFFECT OF THE CONSUMER

FINANCIAL PROTECTION AGENCY ACT
OF 2009 ON CONSUMER CREDIT
David S. Evans,
University College London;
University of Chicago Law School
Joshua D. Wright,
George Mason University School of Law
Loyola Consumer Law Review, Forthcoming
George Mason University Law and Economics

Research Paper Series
09-50
This paper can be downloaded without charge from the Social Science
Research Network at http://ssrn.com/abstract id=1483906
Electronic copy available at: http://ssrn.com/abstract=1483906

The Effect ofthe
Consumer Financial Protection Agency Act of 2009
on Consumer Credit
David S. Evans and Joshua D. Wright'
7 January 2010
Email:
David S. Evans: devans@lecg.com
Joshua D. Wright: jwrightg@gmu.edu
•Evans is Lecturer, University of Chicago Law School; Executive Director, Jevons Institute for Competition Law llnd Economics, and
Visiting Professor, University College London; and Managing Director, LECG. Wright is Assistant Professor, George Mason
University Law School and Department of Economics. We would like to llmnk Lubomira Ivanova, D.miel Garcia Swart7- and Vanessa
Ynnhun Zhang for helpful comments and suggestions and RllsJan Kochemirovskiy, Alillil Miuinova, ofLECG, and Jndd Stone of
Northwestern University School of Law, for exception<l! research assistance. We nre grateful to the American Bankers Association for
financial support This paper is a revised version ofa paper that 'was initially circulated in October 2009.
Evans nnd Wright-Effect ofCFPA on Credit Availability
Electronic copy available at: http://ssrn.com/abstracl=1483906

1. INTRODUCTION
In 2009, the United States Department of the Treasury submitted the Consumer
Financial Protection Agency Act of 2009 to Congress, proposing a sweeping overhaul of
consumer financialreglliation.' Congress has wrestled Witll the Administration's proposal
in the ensuing months. In December, the House of Representatives passed a bill iliat
adopted some key elements of the Administration's bill but discarded others? As of the
printing of this Article, the Senate is still working on this contentious subject, and, as of
the end of2009, no bill has advanced to a Committee vote. This Article analyzes the
Administration's bill since it provides the template for the other legislation considered and
because some of the ideas advanced by the Treasury Depmtment are wOlthy of debate
regardless of whether they m'e adopted during the current session of Congress or at all.
The Administration's proposed legislation would create a new agency that would
take over many of the consumer protection functions of several federal regulatory agencies
ffild have jurisdiction over virtually all consumer financial products mld services? The
new agency is intended to achieve stronger regulation of consumer financial products and
services through more extensive powers than existing agencies have under CU1'1'ent laws. 4
Under the Administration's bill, the CFPA would have tl,e power to, among other things:
• prohibit certain consumer financial products or services or features ofthose products

or services',s
• impose more stringent and intrusive disclosure requirements on providers of
consumer financial products and services;6
• require that providers offer "plain vanilla" products that the agency would design,
before or at the same time those providers offered their own variants on these
standm'd products;7 ffild,
1UNITED STATES DEPARTMENT OF THE TREASURY, CONSUMER FINANCIAL PROTECTION AGENCY ACT OF 2009 (2009),
available al http://www.fimmciflIstflbility,gov/docslCFPA-Act.pdf [hereinafter CFPA Act] (proposing 2009 Consumer Financinl
Protection Agency legislation for passage by Congress). The reforms of consumer fimmeial protection and the proposel to create a
single Olgency were presented on July 17,2009 in UNITED STATES DEPARTMENT OF THE TREASURY, FINANCIAL REGULATORY
REFORM: A NEW FOUNDATION 55~75 (2009) [hereinafter New Foundation], available al
http://www.financiclstability.gov/docsiregs/FinfiIReport_web.pdf(outlining prolJosals for various governmental regulations of
financial services and credit products).
2 We discuss the differences between the Administration find the House bill below. See generally inFo n. 13 and accompanying text.
J These include the Federnl Reserve Board ofGovcrnors, Office ofthe Comptroller of the Currency, Office of Thrift Supervision,
Federal Deposit Insurance Corporation, National Credit Union Administration, and the Federal Trade Commission. See CFPA Act,
supra note I, at § 1061(a). While the CFPA would regulate many consumer financial products und services. there are two priJlcipcl
exceptions: (1) illsunmce would be excluded, except for credit insurnnce, mortgage insurance, und title insurance; (2) investment
products that are already regulated by the SEC or CF'fC would be excluded. CFPA Act, supra note 1, at § 1082(d).
4 New Foundation, supra note 1, at 3 ("We propose. . stronger regulutions to improve the transparency, fairness, and appropriateness
of consumer und investor products and services. ").
, CFPA Act, supra note I, at § 1031(c).
G Jd. at § 1032.
Evans and Wright-Effect ofCFPA on Credit Availability

2
Electronic copy available at: http://ssrn.com/abstract=1483906
.• ensure that underserved consumers and communities would have access to consumer
services, lending, and investment. 8
The proposed legislation expressly allows states and localities to impose stricter
regulations than those adopted by the CFPA and engage in enforcement efforts
complementing those conducted by the CFPA. 9 The Act would therefore end federal
preemption of state consumer protection for nationally chaltered financial institutions.
The Act would also change the law on consumer financial protection by extending the
current condemnation of "unfair and deceptive practices" to include "abusive" practices lO
and require that lenders make "reasonable" disclosmes. II
The Treasury Department initially proposed this new system of consumer financial
protection in its June 2009 white paper Financial Regulatory Reform: A New Foundation.
However, the proposal for the new agency and many of the key principles for how this
agency would regulate consumer financial products were presented in articles alld repOits
that were authored by several law professors, including the Assistant Secretary ofthe
Treasury who was involved in the drafting of the legislation. 12 These articles and repOlts
provide the intellectual foundation for modifications in consumer protection regulation on
the premise that consumers are irrational and make mistakes systemically in how they
borrow money. Accordingly, these writings provide a guide for how its proponents intend
the new agency and laws to work.
This Article concludes that CFPA Act as proposed by the U.S. Department of the
Treasury would:
• Make it harder and more expensive for consumers to borrow and would risk
reversing the decades-long trend towards the democratization of credit.
• Create a "supernanny" agency that is designed to substitute the choice of
bureaucrats for those of consumers. And,
7 !d. at § 1036{b).
• Id. "' § 1014(0)(2).

g!d. at § I035(a). Currently, acc rule~ preempt slEtes llnd localities from supervising, examining and regl11ating the business activities
of national banks and their opeHlting subsidiaries. 12 c.r.R. pt. 7, 34; UNITED STATES GOVERNMENT ACCOUNTAmLITY OFFICE,
acc PREEMPTION RULES; DCC SHOULD FURTHER CLARIFY TI-IEApPLICADILITY OF STATE CQNSUMER PROTECTION LAWS TO
NATIONAL BANKS (2006), available at http://www.gao.gov/nl;'lw.items/d06387.pdE See also Home Owners' Loan Act of 1933, 12
U.S.C. §§ 1461·1470 (2006).
10 The terms "!lbusive" and "abuse" are not defined in the Act. See generally CPPA Act, .wpm note I, at § 1002 (listing definitions of
various terms Imder the proposed Act).
J1 CFPA Act, supra note 1, at § 1032(b),
12See, e.g., Michael S. Barr, Sendhil Mullainathall, Elnd Eldar Shafir, Behaviorally InjiJrmed j'lnanc;al Services Regulation I (New
American Foundation Working Paper, October 2008); Oren Bur-Gill & Elizabeth Wurren, Makin~ Credit Seifer, 157 U. PA. L. REV.
1.39 (2008),
Evalls and Wright-Effect ofCFPA on Credit Availability

3
~ Jeopardize the financial recovery by reducing credit when the economy is fragile
and there is already too little credit.
We briefly explain each of our findings in this introduction.
The Treasury's CFPA Act would also make it harder and more expensive for
consumers to borrower. It would likely:
• Prohibit lenders from offering some credit products and services that consumers
want and benefit from. The CFPA would have the power to do this and the
proponents of the agency have argued that many common products, including
subprime mortgages and credit cards, are of dubious benefit to consumers.
• Impose significant additional costs on lenders that would be passed on to
borrowers. These costs would include exponentially higher litigation and
regulatory costs that would result fi'om allowing states and municipalities to
adopt more stringent regulations and imposing new and untested liability
standards on lenders. They also include the costs of complying with the stronger
regulations that the CFPA is supposed to apply.
• Require lenders to push consumers towards lending products designed by the
CFPA. The CFPA would have the power to impose significant costs on lenders
offering innovative lending products and the consumers who want them. The
CFPA's proponents strongly advocated this paternalistic approach in which the
government provides soft or hard "nudges" to get consumers to take an option
these proponents prefer. There is no re~son to believe that products designed by
a regulatory agency would be better than those designed by lenders and freely
chosen by consumers. (The CFPA may have sufficient powers to "induce"
lenders to provide products of its design even without the ability to require
lenders to offer "plain vanilla" products.)
These aspects of the CFPAAct would result in consumers losing access to methods
of lending that the agency prohibits or that lenders withdraw as a result of the higher costs
th.ey incUl'. Lenders will also pass on the higher costs resulting frolll federal and state
regulation oflending products to consumers in the form of higher interest rates and fees.
These aspects of the CFPAAct would likely reverse the decade long trend towards the'
democratization of credit. The increased cost of lending combined with requirements to
offer agency-designed products is likely to result in a significant reduction in credit
Evans and Wright-Etlect ofCFPA on Credit AVflilability

4
availability, particularly to people who have historically had more difficulty obtaining
access to credit. Finally, the increased cost of credit and reduced availability would
impose collateral damage on small businesses that often rely on consumer financial
products.
The CFPAAct would create a "supernanny" that is designed to substitute
bureaucratic choice for consumer choice. The CFPAAct, as explained by its proponents,
is based on the findings of "behavioral law and economics" that consumers make bad
decisions when it comes to financial selvices products and would be made better off with
the government steering them to better decisions. A Consumer Financial Protection
Agency premised on this paternalistic view would be prone to replace what consumers
believe is in their interest with its own views. It is doubtful that even the most well
educated bureaucrats could design sustainable and profitable products better suited to
satisfy consumer needs than those designed by lenders: Similarly, it is unlikely that any
group of regulators could make better decisions on how and on what terms to borrow than
the consumers with the greatest stake in the loan.
The CFPAAct poses especially severe risks to American households and to the
economy over the next few years. The American economy remains fragile. Credit
availability to households remains restricted, which has hurt those households directly.
The credit crunch has also indirectly harmed consumers through decreased economic
activity, resulting in fewer jobs and reduced incomes. In addition to the long-run effects
the CFPA Act would have on credit availability, the proposed legislation would also
especially dampen credit availability in the nearer term because financial institutions
would face a great deal of uncertainty over the scope and risks of the new regulations. The
resulting reduction in credit availability would likely slow the nascent economic recovery
and especially impact job creation as a result of the multiplier effect of consumer spending
on eco·nomic activity. It would also dampen the formation of new businesses that generate
most of the economy's net new jobs. Adopting a new regulatory system fot consumer
financial products that could make it harder for consumers to bon'ow in 2010 and 2011 is
an especially bad idea.
Our conclusion is that the Treasury Department's CFPAAct of2009 is a misguided
attempt to erect an agency that could substitute its own view fot those of consumers on
how and under what circumstances consumers should be able to botrow money. Short-
term the CFPAAct would tighten the credit crunch that still threatens the economy. Long-
Evans find Wright Effect ofCFPA on Credit Availability

5
term it would reduce the availability of credit generally to consumers as well as small
businesses. Most unfortunately, the CFPAAct-induced reduction in credit availability
would reverse successful efforts to democratize credit by which all segments ofAmerican
consumers have increasingly been able to borrow to meet their short-term and long-term
needs. 13
The remainder ofthe Article explains the basis for our conclusions. One must begin
with an understanding as to how consumers benefit from the variety of lending products
available to them in order to understand why the CFPA Act will likely prove harmful.
Furthermore, it is important to recognize how financial innovation through the
proliferation of consumer credit products has democratized credit by making it available to
an ever-broadening segment of society. Accordingly, we explain each ofthese in Sections
II and III respectively. We then turn in Section IV to explaining the rationale for the
CFPA Act as proposed. In Section V, we analyze how the provisions of the CFPA Act
and the powers granted to the new agency would likely affect the cost and availability of
consumer credit to households and small businesses. Section VI presents our conclusion-
that the CFPA Act would likely harm consumers and small businesses by restricting the
availability of credit at a time when the economy needs more, rather than less, credit.
II. CONSUMER BORROWING
A. Consumer Benefits from Borrowing
Households mainly borrow to even out how much they consume over their
lifecycles. People tend to have increasing wages over the first couple of decades of their
time in the workforce. Wages reach a plateau and then decline until retirement. Figure I
shows the typical time patterns which vary according to educational level. If people
neither borrowed nor saved they would live much better in middle age than earlier or later.
In fact, to the extent they are able to, households usually borrow when they are young.
They may take ont loans to finance an education, the purchase of durable consumer goods,
13 On December 11, 2009, the U.S. HOllSe ofRcpresenlativcs passed the Wall Street Reform and Consumer Fin{lncial Pro/eclion Act of
2009. H.R. 4173, 111sl Cong, (2009). Title IV of that bill addresses commffier financial protection. Sec generally id. at § 4001. There
arc lllany key differences between theHouse Bill and the Administration's proposed bill. Most importantly the House bill eliminates
the proposcrl "plain vonilln" provisions discussed at some length in this paper as well as the proposed "rcnsotlElbleness" requirements.
The I-louse bill [liso retnins elements of the "state preemption" problems we discuss, though it limits these with regards to b£lnks at the
discretion of the Office of the Comptroller of the Currency. The House bill nevertheless still imposes liability for "abusive" lending
practices, consolidates vast swaths offinnncinl regulation ill the Director or the Agency, nnd provides states variOllS incentives to
litigate, such as the opportunity to recover litigation costs. Jd, at §§ 4301{a), 4102{a)(2), 4505{b).
Evans Ilnd Wright-Effect ofCPPA on Credit AVfliiability

6
or even the purchase of a home. As they get older they can reduce borrowing and become'
net savers through home ownership or other investments. They draw down their
investments, plus forced savings such as social security, after they leave the work force.
Figure 1 shows the typical profile of borrowing and asset accumulation over a lifecycle.
Figure 1. Lifetime earnings for different levels of CdUCAtiOl~ in 2007 dollars.
90,000
80,000
70,000 ___ High school graduate

Some college
~ Bachelo~s degree
80,000 .
--- Postgraduate degree
50,000
40,000
30,000 .
20,000
10,000
o+-~~~~~~,-~~-.~~~-.-~~-,-,
Note: Earnings values correspond to averages for male and female workers.
Source: U.S. Bureau ofthe Census, Historical Income Tables, available at
http://www.census.gov/hhes/www/income/histinc/p28.html.
Evnns nnd Wright-Effcct of CFPA on Credit AvailabililY

7
Figure 2. Borrowing nnd income over the lifecyclc in 2007 dolhus.
160,000
140,000
Debt
120,000 .
100,000 .
80,000
60,000
!
Income
40,000
20,000
0 -,
< 35 35 - 44 45 -54 55 -64 65 -74 >74
Age
Note: Debt includes consumer and mortgage debt. Income corresponds to avemge unnual before-tax income.
Source: Federal Reserve Board of Governors, Survey ofConsuffier Finance, 2007. The debt line shows the level of
accumulated debt at a point in time while the income line shows the nnnual income at a point in time.
Consumers borrow for other reasons as well. Some consumers borrow because
they have experienced unanticipated drops in income, perhaps due to a job loss or a
divorce, or because they have an unusual expense, such as a wedding or a vacation. Many
consumers also borrow to pay for other expenses such as buying clothes, 14 As has always
been the case some consumers take on more debt than they should and run into trouble. IS
But, by and large, most people borrow responsibly.16
·14 Consumer surveys lmve found that consumers typically prefer to use their debit cards insteud of credit cards for small everyday
purchases. See, e.g., Sllslln Reda, 2003 Consumer Credit Survey, STORES MAGAZINE, November 2003. Economists explnin the
consumer preference to lise debit eards instead of credit cards with "menml accollnting." Menial accounting refers to the thought
process that consumers engage in before they enter into a transaction which discourages them from overspending und serve as n
mecl1anism ofsc1frcgulation. See Drazen Pre1ec & George Loewenstein, The Red and The Black: MenIal Accounting ofSavings
and Debt, 17 MARKETING SCIENCE 4 (1998).
15 See generally Todd J. Zywicki, An Economic Analysis a/the Consumer Bankruptcy Cds/.,;, 99 Nw. U. L. REV. 1463, 1492~99 (2005).
16 The American Bflnkruptcy Institute reported that there were 1,064,927 personal bankruptcy filings in 2008, which corresponds to less
than 1% of US households. See Press Release, American Bankruptcy Institute. Consumer Bankl'llptcy Filings up Nearly 33 percent
in 2008 (January 9, 2009), available at
http://mvw.abiworld,ol'g1AMffcmplatc.cfm?Section=I-lome&TEMPLATE=/CMlColltentDispluy.cfm&CONTENTID=56120.
According to the Morlgage Bankers Associution, 3.3 percent ofmol'tgages were in the foreclosure process at the end of2008. See
Press Relense, Mortgllge Bankers Associution, Delinquencies und Foreclosures Continue to Climb in Lutest MBA Nationul
Delinquency Survey per American (May 28, 2009), available at
http://www.mortgagebankcrs.org/NewsandMedialPressCenter/69031.hlln. The avemge credit card default wns 5.73 percent in
August according to Moody's. See Moody's Credit Card Index Improves in July, PORnEs, August 21, 2009, available al
http://www.forbcs.com/feeds/flpI2009/08/21/btlsihess~us~moodywapos+crcdit·cnrds_6803326.1I11111. These rates are lower during
normal economic times,
Evans and Wright Effect ofCFPA on Credit Availability

8
Consumers benefit directly from borrowing. Economists have shown that as a result
of aligning consumption and income more closely, consumers can increase their overall
level of well being over their lifetimes. In any event, most people who can borrow against
their future incomes tend to enjoy a nicer lifestyle when they are younger than they could
achieve from current income. 17 Consumers also benefit indirectly from borrowing. By
buying more they enable businesses to expand production and create more jobS. 18 TImt
t11en raises consumer income and spending. International experience also suggests that the
availability of credit spurs economic growth. 19
B. The Risks of Lending to Consumers
Financial institutions face some serious problems in lending to consumers though.

There is great uncertainty over the ability of any individual to pay back a loan. The
earnings with which an individual borrower can pay back the loan are unknown and in the
futnre. Moreover, it can be difficult to collect when people default because sometimes
their only collateral is whatever money they might earn from future work. Lending faces
the well-known problems of adverse selection (loans are most attractive to those who are
least likely to pay them back); asymmetric information (borrowers know more about their
ability to repay than lenders ever could); and moral hazard (borrowers will take less care
to repay loans if they know they can avoid repayment as a result of debt relief laws, rules
and programs, and possible lender forbearance).
The risks to lenders from adverse ~election, asymmetric information and moral
hazard tend to resnlt in precautionary limits on the amount of lending-or liquidity-
available to consumers. In the extreme, consumers who want to borrow cannot find
anyone to lend to them. Centuries ago there was little consumer lending because of the
risks of collecting; and there was little borrowing because laws to ensure repayment-and
reduce moral hazard-had draconian conseqnences snch as time in debtor prison. 20
17 Economists explnin this pattern ofconSUfilcr behavior with the permanent income hypothesis according to which people base their
consumption expenditures olllong~term income trends. See PAUL SAMUELSON & WILLTAM NORDHAUS, ECONOMICS 421 (Irwin
McGruw~I-Iill1998).
lS The essence of this is the multiplier mechanism where an increase in investment raises the incolne of consumers and thereby leflds to
a cascading chain of further spending illCrcUSCS. See id. at 446~54.
19 See Aghion Philippe, Abhijit V. Banerjee, GeorgeRMarios Angcletos & Kalina B, Manova, Volatility and Growth: Credit Constraints
andPl'odliclivily-Enhancing Inve,~/men( (MIT Deportment of Economics Working Paper No. 05-15, April 30, 2005), avai/(jble al
http://ssrn.com/abstmct=719772 (finding thut "tighter financial constraints make R&D investment and growth more sensitive to
shocks, while also gcnerating a more negative correlation between volatility and growth to both higher aggregate volatility" for a
panel of countries over the period 1960-2000).
20 Even English landowners did not mortgage their property before the 1600s because ifthey missed a payment, they forfeited their
entire holdings, See generally GmSEl'PB BERTOLA liT AL., THE ECONOMICS OF CONSUMER CREDIT 1-27 (MIT Press 2006).

9
Economists use the term "liquidity constraint" to' refer to the situation in which an
individual cannot receive additional credit at any price, Some households cannot receive
any credit at all while other households cannot receive additional credit even though they
are willing to pay for it. Over the years consumers have seen the relaxation of these
liquidity constraints as a result of the development of financial markets and innovations in
the provision of financial products and services that have enabled lenders to better deal
with adverse selection, asymmetric information, and moral hazard problems, These
developments have benefited members of social and economically disadvantaged groups
especially, Over the last several decades the supply of credit has become democratized
with, as we will see below, all but the very poorest members of society able to borrow to
some degree.
C. Moral Objections to Borrowing and Lending
Not everyone has applauded the democratization of consumer borrowing over the
years. There has been an almost constant thread of moral opprobriwn to borrowing from
various qUalters since the early days of our country. During the 19th century as retailers
increasingly provided consumer credit various social commentators warned against the
practice. One social critic chastised women for the "curioils process of reasoning" that led
them to buy on installment rather than paying up fi·ont. 21 By the turn of the 20th century,
social commentators warned against the evils of spending alld going into debt through
morality tales such as Keeping Up with Lizzie (which inspired the subsequent comic strip
Keeping up with the Joneses). As Irving Bacheller's "Charge It" observed in 1912,
"Credit is the latest ally of the devil. It is the great tempter. It is responsible for half the
extravagance of modern life.,,22 These commentators have al'gued for public policies to
·23
prevent consumers firom borrowmg.
American consumers have largely chosen to ignore this well-meaning advice
throughout the nation's history. They have embraced new forms of credit that enable
them to enhance their current standards of living through borrowing. By and large that is
an economically sensible response to the shape of lifecycle earnings, and most consumers
do so responsibly. As we will see below, the academic scholars who designed the CFPA
21 LENDOL CALDER, FINANCING THE AMERICAN DREAM: A CULTURAL HISTORY OF CONSUMER CREDIT 181 (Princeton
University Press 2001).
22 IRVJNG BACHELLER,"CHARGE IT," OR KEEPING Ur WITH HARRY 116 (Harper & Brothers 1912).
23 CALDER, supranole 21, at ch.3.
Evans llnd Wright-Effect ofCFPA on Credit Avuilllbility

10
and are its leading proponents are the intellectual heirs ofthe social critics who thought
that credit is the "great tempter" from which consumers should be restrained and
protected.
III. The Democratization of Consumer Lending
Beginning in the early 1980s a number of innovations significantly rednced

liquidity constraints thereby enabling more Americans to borrow more?4 These
innovations helped increase credit availability dramatically for members of socially and
economically disadvantaged groups thereby democratizing credit. The gaps between
credit availability for households headed by upper income white men and credit
availability for households headed 1{y single parents, ti,e less well-off, and minorities
closed considerably. The expansion in consumer spending also helped fuel economic
growth and job creation and helped sustain a long period of economic expansion iliat
started in 1982 with just some minor recessions along ilie way until the recent financial
crisis.
A. Computerized Risk Analysis and Securitization
Innovations in computerized risk analysis mid secmitization were major

developments behind iliese improvements. Both innovations have become controversial
as each played a role in the financial crisis. After we describe these innovations we explain
that it was ilie failure of financial institutions to use these important tools properly rather
than a problem with ilie tools themselves. It is therefore important to preserve the benefits
of these innovations while dealing directly with the problems that were exposed by the
finmlcial crisis.
1. Risk Analysis
We mentioned earlier that lenders are reluctant to provide credit to individuals

because of problems of adverse selection, asymmetric information, and moral hazard.
Advances in risk analysis over the last three decades have steadily reduced the severity of
these problems. Those advances have resulted from a combination ofthe information
technology revolution (which has provided more and cheaper computer power), the
24 Angelo Lyons, How Credit Access Has Changed Over Time/or U.S, Households, 37 nIB JOURNAL OF CONSUMER AFFAIRS 231,
248 (2003).
Evans nnd Wright-Effect ofCFPA on Credit Avai1E\bility

11
increased availability of credit-related data on individuals, and the development of
sophisticated algorithms for predicting risk?'
Sophisticated "automatic underwriting" of loans began with credit cards. These
loans are unsecured and are therefore very risky. There were significant defaults when
credit cards were first issued en masse in the 1970s. Fair-Isaac was one of several
companies to develop credit scores based on mathematical models that credit card lenders
and others could use as inputs into their risk assessment models. Its "FICO" score,
developed in the 1980s, became the standard measure for credit risk. 26 Some large lenders
developed their own scoring systems based on public information as well as relevant
proprietary information they have available for clients?7 As we document below, steady
refinements of these risk assessment models have proved critical in enabling credit card
issuers to expand credit to an ever wider group of Americans.
Automatic underwriting was adopted by the mOltgage industry in the mid 1990s.
Prior to automatic underwriting, all mortgages were evaluated by hand based on various
guidelines. Automatic underwriting based on statistical models of credit default caught on
quickly. By 2000, 60-70 percent ofloans were evaluated based on these techniques. 28
Several factors were important to the growth of these automated risk analysis for
mortgages. Studies found that the automatic techniques were ableto identitY reliably a
larger poo I of credit-worthy candidates and do so at lower cost than human underwriters.
These automated techniques also enabled the lenders to better veritY origination decisions
and to reduce adverse selection problems. These techniques further reduced opportunities
for discrimination against minorities because the algorithms were "color blind" and did
not factor race or ethnicity information into the calculus. The significant expansion in
mortgage lending to African Americans that we document below was due at least in part
to the development of these techniques?9
25 RobertM. Hunt, A CenlulJI O.fConsumer Credit Reporting In America (Federal Reserve Dank ofPhilndelphia, Working Paper, June
2005), available at hltp:llpllpers.ssrn.com/so13/papers.cfm?abstracUd=757929. See also Ben S. Bernanke, Chairmon, Fed. Reserve,
Fimmcilll InnovEltion and Consumer Protection, Keynote Address at the Federal Reserve System's Sixth Biennial Community
Affairs Research Conference (Aprill?, 2009), available at
http://www. federal reserve. gov/ncwseventslspeechlbemankc200904171l, hIm.
26 The FICO scoring systeln compiles information frolll a variety of sources SllCh as public record, credit application reports und awards
points, using mathernatiealmodels, for it number of factors tllElt can help predict the likelihood ofll person repuying debts on time,
e.g. length of credit history, types of credit used, amounts owed. The totlll number ofthese points ~~ the credit score -- predicts how
creditworthy a persoll is. See History of Fair Isaac CorpOnltiOll, hltp:/lwww.fico.com/ell/CompanylPagesihistory.aspx (last visited
~~W~. .
27 Consumer Pooerution of America, Pair Isaac Corporation, Your Credit Score,
http://www.pucblo.gsll.gov/cie_texl/llloney/creditscoreslyo1lT.htm (last visited Sept. 6, 2009).

28 John W. Straka, A Shift in the Mortgage Land~cape: 171e 1990.1' Move 10 Automated Credll Evaluations, 11 JOURNAL OF I-lOUSING
RESEARCH 207, 216 (2000), available al

http://www.knowledgeplex. org/kpJtext_docllment_sunlinarylseholarlLarticle/relfiles/j 111'_11 02_straka.pdt:
29Id.
Evans und Wright-Encct ofCFPA on Credit Availability

t2
Other types of credit also benefited from the development of sophisticated risk
analysis. Overdraft protection, which allows consumers to receive an advance from the
bank when a check they wrote is for more than the available funds in their account, has
also benefited from technological innovation. Historically, financial institutions relied
primarily on individual judgment to guide whether to pay checks that would overdraw a
consumer's account. Recently, however, this process has been automated by financial
institutions. Customers who meet the bank's predetermined thresholds, which are based
on the bank's risk analysis, are approved instantly. The speed and the relatively low cost
of automated approval also allowed banks to extend this service to non-check transactions
including ATM withdrawals and debit card transactions. As Federal Reserve Board
Chairman Bel'11anke remarked: "Although institutions usually charged the same amount
when they paid an overdraft as when they retul'11ed the check unpaid, many consumers
appreciated this service because it saved them from additionalmerchallt fees and the
embarrassment of a bouuced check.,,3o Of course, there are legitimate controversies over
whether consumers receive adequate notification of the fees they pay for overdraft
protection.. But consumers largely benefit from not being embarrassed or being unable to
complete a purchase when their checking account balances are temporarily low.
Automobile loans have also become more ac.cessible to consumers because of
developments in credit scoring and risk analysis. For example, the process for approving
an auto loan has been reduced to hours or minutes instead of days and weeks. By 2001,84
percent of automobile loan applicants in the United States received a decision within an
hour while 23 percent of applicants received a decision in less than 10 minutes. 31
2. Securitization
Before the development of securitization lenders generally held onto loans they
made. That limited total bank lending to a multiple oftheir capital and also exposed these
lenders to considerable variety of risks-such as events like a plant closing in the
community served by a small bank-that affected many ofthe loans in the lenders'
pOitfolios. With securitization the originators of loans were able to sell off some or all of
their loans to other market participants and thereby diversify their risks. Moreover, by
~u See Bel'lumke, supra note 25, nt 1.

~l Michllel E. Staten & Fred I-I, Catc, The Impact afNational Credit Reporting Under (he Fa;/, Credit Reporting Ac(: The Risk q(New
Restriction.\' and Slale Regulation (Financill] Service Coordinating Council, Working Paper, 2003), available af
llttp:llwww,sifma.orgiregulatory/privacy/pdfIFSCCBenefitsCreditReporting,pdf.
Evans and Wright-Effect ofCFPA all Credit AVlJilabilily

13
creating a security instrument that consisted of a portfolio of loans it became possible to
sell these instl'lunents to the global capital markets. That increased the supply offunds that
was available for lending. With the loan removed from the bank's books, the bank had
funds freed up to lend to another customer.
Securitization has experienced tremendous growth since it was introduced in the
1970s, expanding from mOltgage loans to encompass a wide range of financial assets,
including, automobile loans and leases, student loans, credit card loans and small business
loans. The value of outstanding mortgage based securities increased from $6.6 tri1lion in
2004 to $8.9 trillion in 2008 in constant 2008 dollars. J2 Similarly, securitization of other
types ofloans such as auto, credit card, home equity, manufacturing, and student loans
33
grew from $528 billion in 1996 to $2.7 trillion in 2008 in constant2008 dollars.
3.Breakdowns in the Subprime Mortgage Market
The subprime mortgage crisis revealed signiticant breakdowns in the application

by financial institutions of both risk analysis and securitization. Loan-to-value ratios
increased, a greater fraciion of households received mortgages that were interest only, and
more households received mortgages without having full documentation. MOltgage
brokers who were paid on commission increasingly looked the other way in putting
applications through. 34 Most importantly, the financial institutions that purchased these
subprime mortgages and packaged them into securities, the credit agencies that rated these
securities, and the investors who bought these securities did not account for the possibility
of a significant slowdown or decline in the change in housing prices. A broad-based
decline in housing prices cannot be diversitied away by pooling mortgages because all of
these loans would be affected by this "co1'1'elated risk". The decline in housing prices
combined with the fact that many ofthe sub-prime mOltgages needed to be refinanced
32 Securities Industry nnd Financial Markets Association, Mortage-Bncked Securities Outstanding,

http://www,sifmn.orgiuploadedFiles/Rcscarch/Slatistics/SIPMA_USMortgElgeRelatedOutstandillg.pdf (last visited Sept. 6, 2009).
Numbers nre converted into constant 2008 dollars using GOP deflator series from the Gross Domestic Product: Implicit Price
Deflator. See Dureau of Economic Analysis, Gross Domestic Product: Implicit Price Deflator,
http://research.stlouisfcd.orgifred2ldata/GDPDEF.txt (last visited SCI'. to, 2009), available af
hUp://research.stlouisfed.orgffred2/datalGDPDEF.txt (outlining data last updated August 27, 2009).
3.1 Securities Industry ond FinaneiEll Markets Association, Asset-Backed Securities Outstanding,
http://www.sitinEl.org/research/pdIlABS_Oiltstnnding.pdf(last visited Sept. 6,2009). Numbers arc converted into constnnt 2008
dollars using GDP deflator series from the Gross Domestic Product: Implicit Pricc Dcflator. See Bureau ofEcollomic A1ltllysis,
Gross Domestic Product: Implicit Price Deflator (last visitcd Sep. 10, 2009) (outlining data last updated August 27, 2009).
.H It appears, however, that the financial markets took these individual risks illtO account by demanding significant inlerest rate
premiums Oll these [ouns that could cover significElnt defaults: What they did nollake into account was the possibility of declines in
housing prices that WOllld result in correlaled risks across individuals. For Ellengthier discussion oflhis topic, see Dwight M. JElffee,
The U.S. Subprlme Mortgage Crisis: Issues Raised and Le.~.~on.~ Learned (Commission Oil Growth and Devclopment, Working
Paper, 2008), avaifable at http://\.vww.grmvthcommissioll.orglstoragelcgdev/docllmenls/gcwp028web.pdt:

14
after two to three years resulted in a massive increase in defaults. The foreclosure rate for
adjustable rate subprime mortgages increased from a low 3 percent in 2005 to over 8
percent in 2007. J5
The problems from the increase in default rates were exacerbated by the fact that
many of the large financial institutions that packaged the loans kept a significant portion
of the loans on their own books rather than selling them into the global markets as the
basic thesis of securitization suggested they should have done. J6 These institutions
therefore had a concen(Tation of what had become toxic assets. J7
In conclusion, this review of enhanced risk analysis and securitization has shown
that these innovations helped expand the supply of credit overall and made it available to
an ever wider portion of the American public. As the Chairman of the Federal Trade
Commission noted, "Many fail to appreciate that the average American today enjoys
access to credit and financial services, shopping choices, and educational resources that
earlier Americans could never have imagined.,,38 Before we document these effects we
describe additional innovations for several important types of consmuer financial
products.
B. Financial Innovations for Individual Consumer Financial Products and Services
1. Mortgages
Although consumers cou ld easily finance the purchase of sewing machines by the
early 20th centlll'Y they still had great difficulty financing the purchase of homes.
Residential mortgages were only available for 5-10 years after which the principal became
J9
due and the borrower had to refinance. Rates were variable and loan-to-value ratios
were below 50 percent. Relatively few Americans could finance the purchase of homes.
This situation changed largely as a result of the creation of federally sponsored mortgage
~s STAFF OF J. BeON. COMM" 110TH CONG., THE SUI3PRlME LENDING CRISIS, REPORT AND RECOMMENDATIONS BY THE MAJQRITY
STAFFOFTHEJOINT ECONOMTC COMMrnEE27 (Comln. Print: 2007), available af
htlp://www.gfoa.orgldownloadsiCongressSubprimeReport.pdf. For more information on default details rates of subprime loans by
origination year, see James R. Barth, Tong Li, Triphon Phumiwasllnn & Glenn Yaga, Perspectives on the Subprime Market (Milken
Institute Working Paper, January 2008), available af http://ssrn.comJllbstract=1070404.
~6 See Dwight Jaffee, supra nole 34, at 28. See also Dwight M. Jaffee et aL, Mor/gage Origination and Secllritization in Financial
Crisis, in RESTORING FINANCIAL STAI3lLITY: HOW TO REPAIR AFAILED SYSTEM 72 (Wiley Finance 2009).
37 Id.
38 Timothy J. Muris, Chairman, Feci. Trade COnlm'n, Protecting Consumers' Privacy: GO<lls and Accomplishments, Remarks at the
Networked Economy Summit (June 11,2002), available al http://www.tkgov/speecheslmuris/gmason.shtm.
39 Richard K. Green & Sllsan M. Wachter, The American Mortgage in Historical and International Confe.'(/, 19 JOURNAL or
ECONOMIC PERSPECTIVES 93 (200S).
Evans and Wright Effect ofCFP/\. on Credit Availability

15
insurance in response to the housing collapse following the 1929 stock market crash. 4o
This insurance enabled banks to issue long-term fixed rates mortgages. After World War
II these new mortgages enabled millions of Americans to finance homes during the
economic expansion that started in the early 1950s. The number of American households
who owned homes increased from 23.9 million in 1950 to 36.3 million in 1965 to 78.7
million in 2008. Increases in the supply of mortgage lending successively enabled the
post-World War II generation, the large baby boom generation, and the Generation X to
buy and finance homes.
The stagflation years of the 1970s had brought considerable problems to the
housing market. High interest rates led depositors to move fnnds from banks that had
regulatory ceilings on the rates they could pay depositors to treasury securities and other
instruments. Depositors had been a major source of mortgage funding. At the sanle time
high interest rates on fixed rate mortgages put home ownership out of reach of many
Americans. Effotis to introduce adjustable rate mortgages during the 1970s met with
considerable opposition from consumer groups and regulators imposed tight restrictions
on allowable changes in the interest rates. 41 As a result many Americans who wanted to
buy homes were not able to do so at fixed rate mOltgage terms. They were liquidity
constrained.42
Although inflation was tamed by the early 1980s, and interest rates began coming
down significantly thereafter, there was concern tllat the future would bring significant
volatility in interest rates that would put lenders at risk and thereby curtail mortgage
lending to households. The main innovation that was introduced was the 30 year
adjustable rate mOltgage (ARMs) that would allow mortgage earnings to keep pace with
tl,e cost to lenders of funding those mortgages. 43 Home purchasers found these mOltgages
appealing because they were usually set at short-term interest rates which were
substantially lower than long-term interest rates which reflected risk premiums for future
inflation. Over the course of the 1980s a significant part of new mortgage loans were
40 As with the current crisis, housing prices fell, leading homeowners to wnlk nwoy from their 10ElllS which resulted in banks selling
foreclosed homes and further driving down home prices.
41 Kristopher Gerardi, I-Imvey S. Rosen & Palll Willen, Do Households Benefit/rom FinanciallJeregtllation and Innovation? The elISe
of/he Mortgage Market (Fedeml Reserve Bonk ofBoston, Public Policy Discussion Papers, June 2006), available at
htlp://www.bos.frb.org/economidppdp/2006/ppdp066.pdf.
42 ME\ny lenders holding portfolios affixed rate mortgages sustained mnjor loses when interest rates climbed and the rates thcy paid for
funds were well above what they earned. The interest rute inversion orlhe last years of the 1970s find the first YCllrs of the 1980s was
at the core of the savings and loan crisis of the 1980s.
43 COllgressionalleglslation was passed in 1981 to allow S&Ls to invest in ARMs which stimulated their supply,

16
ARMs, reaching a peak of 58 percent in 1988 as shown in Figure 3. Many households
benefited from the ARMs because interest rates ended up declining in subsequent years.
Figur~ 3. Loans with adjustable mortgage rlltes as pl'Oportioll of all loans, 1984-2003.
70%
60%
50%
40%
30%
20%
10%
0%
1983 1965 1987 1989 1991 1993 1995 1997 1999 2001 2003
Source: Monthly Interest Rate Survey, Table 34, Federall-Iollsing Fiuance Board;
http://www,fhfa.gov/Default.aspx?Page=252.
As long-term interest rates declined more home buyers and households who were
refinancing mOitgages shifted back to fixed rate mortgages.
Other innovations were also introduced. These included ARMs with fixed interest
rates for several years, graduated payment mortgages, mortgages that allowed initial
payments to fall below interest charges, and low down payment mortgages. As Professor
Jaffee observes, "These mortgages were all designed to meet specific needs: option
mortgages for borrowers with widely fluctuating incomes, converting ARMs for
borrowers who expect a rising income profile, and so on. ,,44
Securitization was another major innovation in the mortgage industry. It was
responsible for expanding the source of capital to make it possible for millions of young
Americans coming into the labor market and torming households to buy homes. Freddie
Mac was created in 1970 and was charged with creating a more liquid market for
mortgages. 45 Mortgage-backed securities emerged and started becoming popular in the
19~Os. These securities allowed financial institutions to better diversify their risks by
selling some portion of mortgage loans they had originated. As importantly, they broke
the dependence ofthe supply of mOitgages on the supply of deposits. Banks could receive
44 Sr?e Jaffee, supra note 34, Ilt 14.

45 See Freddie Mac Corporate History, htlp:/lwww.frcddiemac.com/ncwslcorpJocts.hlmI (lust visited Sept 6,2009).
Evans and Wright-Effect ofCFPA on Credit AVllilability

17
compensation for originating and then servicing loans by selling mortgage backed
securities. The mortgage originators increasingly became intermedimies between
mortgage borrowers and the global capital markets which vastly expanded the amount of
46
liquidity available to borrowers.
A significant portion of the American population was, nevertheless, still unable to
get mortgages in the 1980s. Lower income individuals, people who had not established a
credit history possibly because of having faced adverse economic circumstances, and
people with poor credit histories were shut out of the mortgage lending market. They
comprised a substantial portion of the 20 percent of households that were liquidity
coustrained. The U.S. govel'l1ment encouraged financial institutions to expand lending to
these groups for a variety of policy reasOlls. 47 Computerized risk analysis and
securitization made the expansion of lending to this underserved part of the population
possible.
Subprime mortgages expanded in the last half of the 1990s and especially rapidly
in the first half of the 2000s. In 1994, only 5 percent of the mortgages that were originated
were subprime. Subprime originations grew to 13 percent in 2000 and reached 20 percent
in 2005 and 2006. 48 Then the housing bubble burst. Subprime originations declined
sharply falling to less than 1 percent of all originations in the last qumter of 2008.
Although there were serious problems in the subprime mOltgage market, as we discuss
below, these mortgages helped a significant number of socially and economically
disadvantage households, who had not had access to credit, to buy their homes. More
importantly, going forward, it is essential to distinguish between subprime mortgage
lending and the housing bust. Housing prices will eventually reach a new equilibrium that
reflects their fundamental value and may have normal appreciation after that. 49 So long as
subprime mortgages reflect the realities of the housing market, they can enable many
socially and economically disadvantaged individuals to obtain home loans that they would
not othelwise be able to get.
2.Non-MOltgage Lending
46 Between 1980 and 2008 the sluue of home mortgages that were held by the originating institution declined from 89 percent to 41
percent. Meanwhile, the share ofmortgflgcs that were securitized incrcElscd from 11 percchl to 59 percent. See Jmnes R, Barth ct
aI., Mor/gage MW'ket Turmoil: The Role 0llntel'(!s{-Rale Re.l'el.~. 2 Gli BANK HOUSING JOURNAL 17 (2007), at 24.
4'1 Lyons, supra note 24, 111 23 t~32.
4~ Bflrth et aI., supra note 35, at 3.
49 Between June 2001 and July 2009 home prices appreciated at the rate ofinflutioll with the gains from the boom being largely offset
by the bust. See Floyd Norris, Ajier a Bumpy Ride, Back a( SquaI'e One, N.V. TIMES, AugUSI28, 2009.
Evans and. Wright-Effect ofCPPA on Credit AV!1ilability

18
As discussed, consumers borrow money to help smooth out consumption and
income over their lifecycles. Importantly they borrow to purchase consumer durables
ranging fi'om televisions to automobiles. American consumers have seen over the nation's
history a steady increase in their ability to borrow to finance current consumption as a
result of innovations in consumer fmancial products and services. These innovations have
provided more and cheaper credit to consumers over time. With each new innovation
more credit worthy borrowers have been able to move from more to less expensive forms
of credit as we show below.
During the great economic expansion of the 19th century, American consumers saw
rising incomes over tbeir lifetimes and enjoyed an increasing array of consumer products
available to them. 50 As the century progressed, retailers became significant providers of
credit to consuniers. Retailers allowed customers to put purchases on a "bouse charge" to
be paid at the end of the month and they sold products on installment plans that allowed
consumers to pay over time. 51 As of 1929, retailers were the primary suppliers of
consumer credit accounting for more than 60 percent of consumer credit with financial
institutions providing the remainder. 52 A fifth of retail sales were carried on open
.accounts-a type of revolving credit-by 1929 and that share remained roughly steady
until after World War II. 53 Retail credit was expensive by modern standards. 54
Retail credit was also limited and highly restricted. Retailers gave customers
identification cards that they could use when they charged merchandise. But generally
these cards could only be used to pay at the retailer that issued the card or in some cases
groups of retailers that agreed to use a common card. A key innovation occurred in 1950
when Diners Club introduced the general-purpose charge card which consumers could use
at many unrelated merchants. Diners Club provided the financing for the merchant and
collected from the cardholder. Like the house charge programs the cardholder paid at the
end of the month. American Express introduced a similar product in 1958. Charge cards
were widely accepted by merchants and carried by millions of Americans-principally
well-off businessmen-by the end of the 1950s.
,0 See BERTOLA ET AL" supra note 20, at eh. 9.

,1 Until 1916 most states hod usury IflWS that limited the ability of financial institutiolls to lend profitably to consumers, RelElilers could
effectively lend, find bypass these usury laws, by including the cost of tile loan (including the risks ofnonpoyll1ellt) ill the purchase
price. See, e.g., id.
,2 BllRTOLA I1T AL., slIpm note 20, fit 309.
B Jd.
5~ See BERTOLA ET AL" supm note 20, at 308.

19
In 1958, Bank of America introduced the modem general-purpose credit card. It
allowed consumers to finance their purchases over time on a revolving line of credit. This
feature substit'uted for the various credit programs offered by retailers. At the time Bank
of America could only operate in California because of interstate banking regulations.
Similar cards were introduced by other banks around the country. The modern credit card
industry did not really take off until the early 1980s. State usury laws had significantly
constrained the expansion of credit cards during the 1970s because the cost of capital was
too high to enable banks to profitably extend credit at the interest rates allowed in many
states. 55 A Supreme Court decision allowed banks to issue nationally without being
subject to these state restrictions. 56 That decision, together with the economic expansion
tlmt began in the early 1980s, allowed the development ofa robust national market for
credit cards.
Over time computerized risk analysis and securitization both became important
factOTs in helping to increase the supply of revolving credit. Crude risk analysis methods
tended to deny many people credit who failed to meet certain thresholds. More refined risk
analysis made it possible to issue credit to a wider group of individuals. These individuals
usually paid higher fees including interest rates because they had greater expected default
rates and other payment-related problems on average. Lenders developed various pricing
plans to accommodate these expanding categories of borrowers.
The increased availability of credit cards has also provided significant benefits to
small businesses. Almost half of firms with fewer than 20 employees use personal credit
cards to help finance their businesses. 57 That has enabled small businesses, especially new
ones that do not have a significant credit history, to obtain sources of working capital as
well as longer termloans. 58 Smaller retailers have also benefited from the expansion of
credit cards. Larger retailers can afford to offer store cards along with other lending
programs such as installment sales. Smaller firms typically lack the financial resources or
the scale to offer their consumers credit. The widespread availability of consumer credit
55 Christopher C. DeMuth, 11,e Case Against Credit Card Interest Rate RegYlation, 3 YALE 1. ON REG 201 (1986).
S6 Marquelle Nal '1 Rank ofMinneapolis v. First afOmaha Service COI1)" 439 U,S. 299, 318 (1978).
57 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, llOTT-1 CONG" REPORT TO THE CONGRESS ON T1-IE AVAILADILITY
OF CREDIT TO SMALL llUSINESSES 30 (2007). 46.7 percent of businesses with fewer than 500 employees rely upon persollElI credit
c£lrds. Jd.
58 See DAVID S. EVANS & RICHARD SCHMALENSEE, PAYING WITH PLASTIC: THE DIGITAL REVOLUTION IN BUYING AND BORROWING,
107~I 14 (MIT Press 2005); David Dlanchflower & David S. EVlIIlS, The Role a/Credit Cards in Providing Financing/or Small
Businesses, 77 TIm PAYMENT CARD ECONOMICS REVIEW 77 (Winter 2004), available {llhltp:l/ssrn.com/abstmct=1474450,

20
frOln third parties has therefore benefited smaller retailers and helped level the playing
field with larger retailers. 59
There are controversies on whether Americans took on too much debt as a result of
the availability of credit cards and over some of the pricing practices ofthe card issuers.
These are valid concerns that lie outside the scope of this paper and which have been
addressed by recent legislation and regulation. However, we think it is important to
recognize that despite these issues a vast number of Americans have benefited from
expanded access to loans which has enabled them to deal with emergencies and smooth
out consumption over their lifecycles. As we note below, it also enabled them to shift
borrowing from more expensive retail loans. For example, if credit cards were banned, or
sharply curtailed, today many consumers would be buying furniture on installment plans
from retailers and paying much more in the end than they pay with credit cards. Other
consumers would turn to payday lenders, pawn shops, and loan sharks.
Another major innovation was home equity loans. These were introduced in the
late 1970s. 6o Many households had realized large increases in the value of their homes.
But their investments in their homes were illiquid. To borrow, these households used
primarily credit vehicles, such as credit cards, that did not require collateral and therefore
had relatively high interest rates. The home equity loan allowed them to borrow against
the equity they had built up in their houses and at lower rates than many other forms of
credit since the house served as collateral. The value of home equity lines increased from
around $322 billion in 1990 to over $1.1 trillion in 2008 in constant 2008 dollars. 61
Computerized risk analysis and securitization facilitated the expansion of other
forms of credit from the early 1980s to the present. For example, automobile loans, for
which the loan-to value ratio is typically around 90 percent, increased from about $254
billion in 1980 to $584 billion in 1999 in constant 2008 dollars. 62
59 Evans & Schmalcnscc, supra note 58, at ell.3.

liO Louise Story, flome Equity Frenzy Was a Bank Ad Come True, N.Y. TIMES, August 15,2008, available at
hHp:/Iwww.nylimes.comJ2008/08115/business/15sell.htllll.
61 Press Release, Federnl Reserve Bourd of Governors, Flow of Funds ACCOllllts of the United Stntes (Sept. 18, 2008), available al
http://www.fedcmlresefvc.gov/rclcElscs/zl. Numbers me converted into constnnt 2008 dollars using GDP defllltor series from Gross
Domestic Product: Implicit Price Denator, Bureau of Economic Anlllysis, last updated August 27, 2009 available at
http://research.stlouisfed.orgifred2/data/GDPDEF.t:<.t
62 For 1980 numbers, see Economic Research, Fedeml Reserve Bank ofSt. Louis, Series: AUTONS, Total Automobile Credit
Outstonding, available al hup:l/research,stlollisfed.orgifred2/scrics/AUTONS. For 1999 numbers .~ee Fcderal Reserve Stntistical
Release G19 (June 7, 1999), available a( hltp:/lwww.fedemlreserve.gov/rc1enseslg19/199906071. Numbers ore converted into
constant 2008 dollors using GDP deflator series from Gross Domcstic Product: Implicit Price Deflator, Bureau of Economic
Analysis,lnst updated August 27,2009 available 01 http·.Ilresearch.stlouisfed,orgifred2/dotalGDPDEP,txt. More recent data on the
totll\ amollnt of automobile loans outstanding arc not publicly available.

21
The expansion of non-mortgage credit as a result of the introduction of innovative
methods of lending has enabled consumers to substitute less expensive for more expensive
forms of credit. Although there is no hard evidence we are aware of, it is likely that the
introduction by retailers of house charges and revolving loans reduced the reliance of 19 th
century consumers on the main alternative forms of credit which were pawn brokers and
loan sharks. Charge and credit cards displaced retail credit. Between 1968 and 2008 the
fraction of non-mortgage debt from retailers declined from 17 percenllo about 2 percent
while the fraction based on credit cards increased from 1.3 percent to 38.1 percent of
consumer credit. 63 Credit cards generally offered better financing terms than store
programs as well as greater variety and p011ability. When home equity loans became
available consumers substituted this cheaper form of lending for borrowing on credit
cards. 64 Rates on home equity lines are typically lower than those on credit cards, and also
offer tax benefits. 65 This made borrowing against a person's existing home for non-
66
housing consumption more common. Of course, as housing values have declined we
would expect home equity loans will as well and consumers will trend back to cards.
C. The Effects of Financial Innovation on the Expansion and Democratization of Credit
These financial innovations have helped relax liquidity constraints on millions of

Americans who would not have been able to get credit or would not have been able to get
as much credit as they wanted. Professor Lyons found that in 1998 American households
were able to obtain 68.3 percent ofthe credit they wanted up from 55.5 percent in 1983. 67
That trend has likely continued to the present given the effects of the innovations
discussed above. As we demonstrate, access to credit has expanded to the socially and
economically groups that are most likely to be liquidity constrained.
I. Home Ownership
The growth rate in home ownership for several socially and economically
disadvantaged groups increased more rapidly than the growth rate for bettcr situated
(il,Reserve Statistical Release G19, Consumer Credit Historical Dala, available at http://www.federalre.serve.gov/relcases/gl91hist/.
(i-I Michael E. Staten, Cunsumer Debt: MYlh8 about the Impact o/{he Reces,~ion, Credit Research Center Reprint#21 (Autumn 1993).
65 According to nIoomberg, the average lowest credit card rate was 11.25 percent as of Aug 19, 2009 while the rete for home equity
loans wus 8.55 percent according to bankmte.colll. JcfTPlungis, Consumer Gains on Cred/l-Card Law Pared by Rale Hikes,
BLOOMBERG.COM, August 19, 2009, available at hltp://www.bloomberg.com/apps/news?pid=2067000 I&sid=aBKkB081ypy4.
f,f, Barry Z. CYllmnon & Steve M. Fazztlri, Household Debt in the Consumer Age: Source ofGrowth- Ri:"k a/Collapse, 3 CAPITALISM
AND SOCIETY (2008).

(;7 Lyons, supra note 24, at 248.
Evans find Wright-Effect ofCFPA on Credit A¥llilubility

22
groups between the late 1980s and the late 2000s. Between 1995 and 2008 the rate of
growth of home ownership for African Americans was 11.0 percent and that of Hispanics
was 16.6 percent compared to 5.8 percent for whites. B8
Individuals in the bottom fifth of the income distribution have experienced an
increase in home ownership as a result of greater access to capital. Between 1989 and
2007, as shown in Table 1, the percent offamilies who owned a primary residence in the
bottom quintile of the income distribution increased from 32.9 to 41.4 percent (a change of
8.5 percentage points); that compares with an increase from 65.4 to 69.3 percent (a change
on.9 percentage points) for households in the middle quintile of the income distribution.
Thus the increase in home ownership was almost twice as high for the low as for the
middle income group. The gap betWeen the poorest and middle income category
decreased from 32.5 percent points (65.4-32.9) to 27.9 percentage points.
The percent of home ownership for single parents increased from 42.7 percent to
49.1 percent (falling from a peak of 54. 5 percent in 2004 before the housing collapse
started) while percent of home ownership among couples with children remained roughly
constant between 1989 and 2007 (changing from 77.5 percent to 78.0 percent). The
increase of 6.4 percentage points in home ownership for single parents was more than 12
times higher than the 0.5 percentage point increase for parents with children.
Table 1. Percent of families with primary residence l by I'acial, family structure, and income
chltntcteristics
Percentile of
Race or ethnicity Family structure Age of head
income
Year
White, non Nonwhite or Single with Couple with
Bottom Middle < 35 45 ~ 54
Hispanic Hispanic children children
1989 70.5 44.4 42.7 77.5 32.9 65.4 39.4 76.5
1992 70.3 44.4 43.0 74.6 38.9 61.8 36.8 75.4
1995 70.6 44.3 46.8 74.6 39.7 62.6 37.9 75.3
1998 72.0 47.2 46.9 79.1 38.8 67.3 38.9 74.4
2001 74.3 47.3 48.5 78.7 40.6 66.0 39.9 76.2
2004 76.1 50.8 54.5 77.8 40.3 71.6 41.6 77.3
2007 75.6 51.9 49.1 78.0 41.4 69.3 40.7 77.3
Note: BOUOID percentile is tor people in the lowest 20 percent find middle quintilc is for people in 40-59 percent range.
Source: 2007 Survey of Consumer Finance, The Federal Reserve Board (June 15,2009), available at
htlp:/lwww.fedcmlreserve.gov/pubSloss/oss212007/2007%20SCP%20Chartbook.pdf.
Gil The percentage of African American homeowners grew from 42.7 percent in 1995 to 47.4 percenlin 2008, the percentage of
HisprlOic homeowners grew from 42.1 percent 10 49.1 percent whilc the percentage of white homeowners increased from 70.9
percent to 75 percent. Sea U.S. Census, Homeownership Rates by Race find Etlmicity ofHollseholder: 1994 tq 2008, ami/able at
www,census.gov/hhes/www/hollsinglhvs/onnuaI08/onn08t22.xls.
Evans and Wright-Effect ofCPPA on Credit Availability

23
Between 1989 and 2007 all groups experienced an increase in the value oftheir
homes. As reported by the Survey of Consumer Finances, the gap between the value of
the homes afforded by lower and middle class people shrunk between 1989 and 2007. 69
In 1989 the average value of the home for the lowest income quintile was half of the price
of the middle quintiles. 7o In 2007, the median home value for the lowest quintile is only
50 percent lower than that fo)'the middle. 71 The median value ofthe home owned by
African Americans and Hispanics increased by 125 percent compared to an increase of
only 66 percent for the value of homes owned by white people. 72
These increases in home ownership were made possible because of the increased
availability of mortgage finance. Table 2 shows the percent of households with mortgages
or home equity loans for each of the groups discussed above. Between 1989 and 2007 the
share of Hispanics and African Americans with mortgages increased 10.6 percentage
points (39.2-28.6) compared to an increase of7.2 percent points for white. Similarly, the
percent oflower income people with mOitgages almost doubled fi'om 7.5 percent to 13.7
percent.
Table 2. Percent of families with mortgHgcs or home-equity
Percentile of
Income
Year
Bottom Middle < 35 45 - 54
1989 42,0 28.6 30.8 62.2 7.5 37.3 34.9 56.9
1992 42.1 27.3 28.3 63.2 10.4 35.4 30.9 59.4
1995 43.3 30.2 ,32,0 63.0 10.4 37,7 32.9 61.1
1998 45:5 30.3 28.9 65.5 10.8 42.5 32.9 57.6
2001 46.1 35.1 34.1 67.0 12.8 43.1 35.6 58.7
2004 49.7 36,3 41.3 66.5 14,6 50 37.7 62.5
2007 49.2 39.2 37.0 67,8 13.7 48,8 37,1 63.8
Note: Bottom percentile is tor people in the lowest 20 percent and middle quintile is for people in 40-59 percent range.
Source: 2007 Survey ofCol1sumer Finmlce, The Federal Reserve Board (,Tune 15,2009), available at
http://www.fcdcralrescrvc.goY/pubs/oss/oss2/2007/2007%2OSCF%2OChartbook.pdf
2. Access to Non-Housing Credit
Socially and economically disadvantaged groups also secured greater access to

non-mOitgage credit between 1989 and 2007. Tables 3-6 summarize the changes and
6~ Federal Reserve Board of Governors, Survey ofConsltlTIcr fimmcc, 1992-2007,

hLlp://www.lcdcrl1lrescrve.gov/pllbsioss/oss2/scfindex,html (last visited Sep. 29,2009).
7fJId.
71 !d.
n [d.
Evans and Wright-Et1:cct ofCPPA on Credit Availability

24
---~ - - - ~ ------ -~ --~-----~- ~---
overall growth rates for the groups discussed above for automobile ownership, education
loans, credit card loans and home equity lorn,s.
Between 1989 and 2007 the percentage of non-white households with automobile
loans increased from 29.3 percent to 33.3 percent while the share of white households with
auto loans decreased slightly following a peak of37.4 percent in 2004 (see Table 3). The
share of single parents with vehicles loans increased from 26.9 percent to 28.3 percent
while the share of married couples with cal' loans dropped to 50.4 percent following an
increase to 51.1 percent in 2004. Similm' observationscffil be made for lower income and
younger people.
Table 3. Percent of families with vehicle installment loans
Percentile of
income
Year
White, non Nonwhite Single with Couple with
Bottom Middle < 35 45·54
Hispanic or Hispanic children children
1989 36.6 29.3 26.9 50.7 11.5 41.5 37.8 47.6
1992 31.4 24.9 25.1 44.1 10.0 33.5 36.6 34.6
1995 32.9 27.6 24.0 47.6 11.2 34.3 40.1 37.9
1998 32.0 29.4 27.1 44.2 12.4 37.1 36.9 40.1
2001 35.9 32.1 34.5 50.9 12.3 42.0 45.0 37.8
2004 37.4 30.9 30.9 51.1 12.8 43.6 41.3 39.0
2007 35.5 33.3 28.3 50.4 13.0 41.1 44.3 39.1
Note: Bottom percentile is for people in the lowest 20 percent Dnd middle quintile is for people in 40-59 percent range.
Source: 2007 Survey of Consumer Finance, The Federal Reserve Board (June 15, 2009), available at
http://www.federalreserve. gov/pubs/oss/oss2l2007 /2007%2 OSCF%20Chartbook.pdf
The increased access to credit also provided minority groups with improved access
to education loans as evidenced by Table 4. Between 1989 and 2007 the proportion of
non-white households holding education loans increased 7.7 percent points (from 10.8
percent to 18.5 percent) compm'ed with ffil increase of only 5.6 percent points for white
(from 8.3 percent to 13.9 percent).
Table 4. Percent of families with education installment loans
Percentile of
Race or ethnlcity Family structure
income
Year
Bottom Middle
1989 8.3 10.8 17.0 8.9 8.4 7.7
1992 10.8 10.3 15.0 13.5 10.6 14.1
1995 11.6 12.7 13.7 17.3 9.5 11.4
1998 11.4 11.4 13.6 14.4 9.9 11.7
2001 11.2 13.5 14.3 14.9 7.7 13.6
2004 13.7 12.9 14.4 18.0 10.9 15.8
2007 13.9 18.5 20.2 20.7 10.7 16.6
Note: Bottom percentile is for people in the lowest 20 percent and·middle 'luintilc is for people in 40-59 pcrcent range.
Source: 2007 Smvcy of Consumer Financc, The Federal Reserve BOflrd (Jnne 1$,2009), available at
hUp ://www.federnlreserve.gov/pubs/oss/oss2l2007/2007%2OSCF%2 OChartbook.pdf.

25
The gap between minority groups holding credit cards and the rest of the
population also declined. The gap in having revolving credit between white and nonwhite
households disappeared between 1989 and 2007. Meanwhile, the gaps between single
parents and couples with children and between the lowest and middle income quintiles
also declined dramatically over this period as shown on Table 5.
Table 5. Percent of families with credit cArd bahmccs
Percemile of
income
Year
Bottom Middle < 35 45·54
1989 41.5 34.4 35.6 53.8 15.3 48.9 44,5 49.3
1992 44.2 42.1 43,3 56.0 23.4 51.9 51.8 48.9
1995 47.1 48.0 43,9 60.9 26.0 52.9 54.7 56.4
1998 44.3 43.5 38.0 55,8 24,5 50.1 50.7 52.5
2001 43.3 47.6 48.1 52.4 30,3 52.8 49.6 50.4
2004 46.0 46.7 48.6 56.7 28.8 55.1 47.5 54.0
2007 45.1 48.4 45.1 54.7 25.7 54.9 48.5 53.6
Note: Bottom percentile is tor people in the lowest 20 percent llnd middle quintile is for people in 40~59 percent range.
Source: 2007 Survey ofCol1sutner Finnnce, The Federal Reserve BORrd (June 15,2009), available Ilt
http://www.federalreserve.gov/pubs/oss/oss21200712007%20SCF%20Charlbook.pdf.
Similar trends are also observed for home equity lines of credit. As
homeownership increased and home equity lines of credit became available in the 1980s,
more households were taking advantage of their house equity (see Table 6). In 2007, 5.5
,
percent of non-white households had access to a home equity line versus only 1.2 percent
in 1989. From 1989 to 2007 the proportion of single parents with home equity lines
increased from 0.8 percent to 6.4 percent. A greater number of younger people were using
home equity loans to finance purchases. In 2008 there were 4 percent of people under 35
with home equity lines of credit vs. only 0.8 percent in 1989.
Evans and Wrighl'---Effcct of CFPA on Credit Availability

26
Table 6. Percent of families with home equity lines of credit
Percentile of
income
Year
Bottom Middle < 35 45-54
1989 3.8 1.2 0.8 5.5 0.1 2.4 0.8 6.2
1992 5.2 1.4 1.3 7.0 0.0 3.7 1.1 8.3
1995 3.3 1.4 0.9 4.7 0.0 1.4 1.4 5.1
1998 5.0 2.6 2.7 7.4 0.5 3.3 1.4 7.9
2001 5.7 1.9 2.0 7.3 1.0 3.0 2.9 7.2
2004 10.5 3.6 5.6 13.6 1.3 7.1 3.5 13.1
2007 9.8 5.5 6.4 11.0 1.9 6.9 4.0 11.7
Note: Bottom percentile is for people in the lowest 20 percent and middle quintile is for people in 40-59 percent range.
SOllfce: 2007 Survey ofConsnmer Finance, The Federal Reserve Board (June 15,2009), available at
http://www. federalreserve.govIpubs/o ssloss2/200712007%20SCF%20Chartbook.pdC
D. The Effects of Financjal Innovation on Economic Expansion and Job Growth
The increased supply of credit to households that began in the early 1980s helped
fuel economic expansion and job growth for several decades. More credit means more
funds available for consumption and investment which then increases demand for goods.
To meet the growing demand, firms start producing more goods and hiring mme workers
which in turn results in higher employment and income for consumers. The increased
income further stimulates consumption and supply of goods. Thus, the initial
consumption stimulation starts a cascading chain of further spending and increases which
leads to an overall economic growth. Economists call this mechanism "the multiplier
effect." 73
IV. The Rationale for the Consumer Financial Protection Agency Act of2009
Although consumer lending has beneJited millions of Americans, it has not been
without its problems. As with almost any industry, some firms engage in unscrupulous or
even fraudulent practices. Some consumers borrow on incomplete or imperfect
information for a variety of reasons. The U.S. Congress has passed numerous laws such
as the Truth in Lending Act and the FTC Act that regulate various aspects of consumer
lending, especially disclosure requirements. Various states have also passed laws to
protect borrowers, including state consumer protection legislation, usury laws, and
13 For more discussion about the multiplier effect, see generally PAUL SAMUELSON & WTU1AM NORDliAUS, supra note 17, at 446.
Evans find Wright-E:lIect ofCFPA on Credit Availahility

27
restrictions on payday lending and other forms of lending. As a result, consumer lending
is already extensively regulated in the United States.
The U.S. Department of Treasury has proposed sweeping changes to this system of
regulation. In announcing the plan, President Obama said that consumer financial
protection was needed because "crisis was not just the result of decisions made by the
mightiest of financial firms; it was also the result of decisions made by ordinary
Americans to open credit cards and take out home loans and take on other financial
obligations.,,74 The Treasury Department argued that mortgage c~mpanies as well as other
financial firms sold products that "were overly complicated and unsuited to borrowers'
financial situation[s] ... with disastrous results for consumers and the financial system."
The Treasury Department's report does not, however, provide evidence to SUppOlt the
naked asseltion that failed consumer protection regulation played a significant factor in the
financial crisis. Indeed, there is no evidence that we are aware ofthat predatory lending 01'
other practices that would violate the conSl11ner protection laws resulted in a significant
portion of the loss in value of the mortgage backed securities that were at the heart of the
financial meltdown?' There is therefore little basis for concluding that increased
conSl11ller protection in the mortgage market would have prevented the financial crisis,
that failed consumer protection was a significant cause of the financial crisis, or that the
changes sought by the CPPA Act would have averted 01' even meaningfully reduced the
harm from the financial crisis.
14 Barllck Obnma, President oCtile United States, Speech on 21st Century Financial Regulatory Reform (.Tune 17,2009), available CI(
http://www.cfr.orglpublicntion/19658/obamlls_speech_on_21st_century_fill011cial_regulntory_reform.htm!.
75 That is not to deny that some consumers were victims of unfair and deceptive practices in securing mortgages <mel that the regulatory
agencies could und should have done n better job regulnling thM burgeoning subprime mortgage market. There is no evidence that
we life aware of, however, that a significant portion ofthc individuals who defaulted "verc victims ofullscrupulous mortgage
practices or that they would have failcd to take out mortgages in the absellce ofthese practices. Oren Bar-Gill find Elizabeth Warrell
have argued that "the high proportion of people with good credit scores who ended lip with high-cost mortgllges raises the specter
that some portion of these consumers were not fully cogllizullt of the fact that they could have borrowed for much less." See Oren
Bar-Gill & Elizabeth Warren, Making Credit Safer, 157 U. PA. L. REV. 1,39 (2008). They claim that many people who got sub-
prime mortgElgcs could hnve received less expensivc prime mortgages. These Iluthors do not provide any evidence thflt a significant
number of homeowners thai defElulted would not have done so had they paid lower intcrest rates. It is doubtful that there would
have been fewer defElults sincc even with lower interest ratcs these home owners would have had negative equity ill their homes and
therefore would gain from defaulting. In addition, a Federol Reserve Bank ofBosl'on study finds that most subprime mortgage
borrowers would not have received prime mortgages. Christopher L. Foote, Kristopher S. Gerardi, Lorenz Goette & Palll Willen,
Sl/bpl'ime Facts: What (We Think) We Know about the Subprime Crisis and Whal We Don't (Federal Reserve Board of Boston,
Public Policy Discussion Paper No. 08~2, May 30, 2008), available al http://ssrn.com/abstrnct=115J411. Deteriomtion of the
underwriting standords has also been put to blame for the currcnt crisis. Another study at the Fedeml Reserve Bank of Boston found
that IOllns issued in 2005-2006 were not very different from loans made earlier, which, in turn had performed well, despite carrying
o variety of seriollS risk factors. While the 2005-2006 loons moy hove corried risk factors, such as increased levemge, underwriting
standards alone cannot explain the dnlllllltic rise in foreclosures, See Kristopher S. Gerardi, Andreas Lehnert, Shone Sherland &
Paul Willen, Making Sense ofrhe Subpl'ime Crisis (Federal Rcservc Board of Boston, Public Policy Discussion Paper No. 09-1,
December 22, 2008), available at http://ssrn.com/abstraet=1341853; Geetesh Bhard\oYaj & Rttideep Sengupta, Where~~ the Smoking
Gun? A Study afUnderwriting Standardl'for US ~<"'ubjJ,.ime Morlgage,~ (Federal Reserve Bllnk of8t ulllis, Working Paper No.
2008~036B, Apr. I, 2009), available ar http://ssrn.colll/flbstmct=12B6106
Ev'!ns find Wright-Effect ofCfoPA on Credit Availability

28
To the extent an intellectual case hits been made for the new agency, it has been
made by several law professors in a series of articles that appeared in 2008. TIleir
argmuents are largely based on a belief that consumers make poor choices when it comes
to financial products and services and that stronger consumer protection regulation could
make these consumers better off by regulating the design of these products, mandating
various disclosures, restricting consumer choice, and 'nudging' consnmers toward certain
standardized financial products.
The CFPA Act appems to have evolved from a May 2008 paper written by two law
professors: Elizabeth Warren of Harvard, who is currently the head ofthe Congressional
Oversight Panel on TARP funding, and Oren Bar-Gill of New York University.76 They
identified a series of problems with consumer financial products, argued that existing
federal regulatory agencies lack t1le ability or motivation to deal wit1l these problems, and
proposed the creation ofa new federal consumer financial protection agency.77 Along
with several co-authors, Michael Barr, a University of Michigan Law School professor
who is now the Assistant Secretary of the Treasury involved in the draft legislation
expanded upon the proposed Bar-Gill/Warren agency by detailing key aspects of the
regulatory approach the agency, should take in an October 2008 paper. 78 Barr et a1.
proposed requiring that lenders offer standardized products designed by the. agency
regulators. 79 Further, Barr et a1. would permit individuals to sue lenders if certain
substantive terms of financial products, including disclosure terms, were deemed
"unreasonable."so These papers provide the articulated basis for understanding the
rationale behind the CFPA Act as envisioned by its architects, insight into how the new
agency would analyze consumer lending products, and a means to predict how the new
agency would anect people's access to consumer credit and their choice of products. In
the absence of concrete guidelines specifying how the broad discretionary autllOrity
granted to the new agency will be exercised, t1lese papers provide t1le most reliable basis
to predict how the CFPA will operate in practice.
16 See Bar.Gill & Warren, .wpm note 75, at 26-27. Bar~GiIl and Warren's case for the CFPA Act relies hellvily on their previous work.
See, e.g., Oren Dar-Gill, Seduction By Plastic, 98 NW. U. L. REV. 1373 (2004); EliZllbeth Warren, Unsafe at Any Rate, 5
DEMOCRACY; /I. JOURNAL OF IDEAS, (Summer 2007), available at http://www.democfflcyjournal.org/article.php?ID=6528.
77 BafMGilI & Warren, supra note 75, at 26.
'18 Michael S. Barr, Sendhil Mullainathllll, and EldnT Shaftf, Behaviorally InJormed Financial Sm'vices Regulation 1 (New American
Foundation Working Paper, October 2008).
79 Jd. at 7-9.
110 Id. at9, 15.

29
The proposed new consumer financial protection agency, as described by these
authors, is based on the following set of presumptions concerning consumer behavior,
markets, and regulation:
• "[m]any consuiners ate uninformed and il'1'atiol1al,,~81
• "consumers make sysiematic mistakes in their choice of credit products and in the
use of these products,,,'2 and,
• regulations should adopt a number of "behaviorally informed" policies designed to

address the consequences of consumer ignorance and irrationality. '3
This view of consumers, and the policy recommendations that follow, are in turn
based on the "behavioral law and economics" literature.'4 This literature consists of a
number of shldies in economics and psychology that find that consumers appear to make
various systematic mistakes evaluating probabilities and discounting future values, and,
further, that consumers make various choices that appear inconsistent with each other.
Members of the behavioral law and economics school typically believe that these
studies provide a basis for government interventions in the market to prevent consumers
from hanning themselves. Some members advocate "soft paternalism" that 'nudges'
consumers towards what certain scholars deem to be better choices.'s Such 'nudges' often'
take the form of default rules which map onto the policy preferences of the academic
advocate. Professors Cass Sunstein and Richard Thaler, for example, have advocated that
businesses make 40 I-(k) plans "opt out" to nudge consumers to invest in these plans and
thereby overcome what Sunstein and Thaler perceive as a tendency to irrationally
overemphasize current consumption over long-term saving. Other behavioral law and
economics scholars advocate "hard paternalism" that renders disfavored choices
impractical or illegal, even between willing and informed consumers and providers.'6
"Hard paternalism" includes recently proposed "sin" or "vice" taxes aimed at reducing the
consumption ofjunk food, soda, and cigarettes. 87
81 See nllr~Gil1 & Warren, supra note 75, at 21; Burr et al., supra note 78, at 1.
82 BarMGill & Worrell, supra note 75, nt 26.
83 See generally Barr ct al., supra note 78, lit 1.
M for u summary ofthis Iitemture, see Christine lolls, JJehavioml Law and Economics, in ECONOMIC INSTITUTIONS AND
BEJ-IAvrORALEcONOMICS (Peter Diamond cd., Princeton University Press 2006); Christine lolls, Cuss R. Sllnstein & Richard
Thaler, A Behavioral Approach to Law and lJ'conomics, 50 STAN. L. REV, 1471 (1998).
85 RICHARD THALER & CASS SUNSTElN, NUDGE: IMPROVING DECISIONS ABOUT HEALTH, WEALTH, AND HAPPINESS (Yule
UniversiIy Press 2008).
SG See, e.g., nur~GiIl & Warrell. supra note 75, <1t 21; Eyal Zamir, 111e EYflciency ajPaternalism, 84 VA. L. REV. 229, 230-32 (1998);
Orly Lobel & On Amir, Stumble, Predict, Nudge: How Behavioral Economics Inforlns Law and Poli",y (reviewing- Thaler &
Sun stein, Sllpl't1 note 85); Jonathlln Gruber, Smoking's 'lnf(!rnalilie.l', '25 REGULATION 52 (Winter 2002-2003).
~7 See Gruber, ....upra note 86.

30
Behavioral law and economics scholars favoring both "soft" and "hard" forms of
paternalism usually take a dim view of consumer borrowing. They believe that consumers
systematically over-value current consumption and do not adequately account for the costs
of repayment in the fUhlre. 88 Some members of this school therefore advocate a variety of
prohibitions on consumer lending, including banning subprime mortgages;89 prohibiting
credit cards;90 requiring the unbundling oftransacting and financing services offered by
credit card companies so that consumers could not use the same card to make a purchase
and then finance it;91 and applying state usury laws to credit cards. 92
Economists generally agree that consumers do not carry out the perfectly rational
computations that theoretical models usually assume. However, there is considerable
controversy over whether many of the_findings relied on by behavioral law and economics
scholm;s m'e sufficiently reliable for the purpose of fashioning policy recommendations.
Many of the findings are based on laboratory experimelits in which students or other test
subjects are asked to complete some hypothetical exercise. Economists have found that
some of these findings are simply the artifact of how questions are posed to the test
93
subjects while others have argued that the authors of these studies have not adequately
explored whether there is a rational explanation for their findings. 94 As Professor David
Levine of the California Institute of Technology has observed, "While behavioral
economics points to many paradoxes and pl'Oblems with mainstream economics, their own
models and claims are often not subject to a great deal of sCI11tiny.,,95
B8 See Bnr~Gill> supra note 76, at 1395-1404.

89 See generally Alan M. White, The Case for Banning Subprime Mm1gages, 77 U. CIN. 1. REV. 617 (2008) (expounding upon banning
several "subprime" lending pmctices because, amongst other grollllds, consumers systematically overMva!ue presellt~day consumption
to future detriment).
90 See, e.g., George Loewenstein & Ted O'Donoghue, We Can Do This the Easy Way or rhe Hard Way: Negative Emotions, Self-
Regulation, and the Law, 73 U. CHI. L. REV. 183,204 (2006) (advocating a ban on credit cards).
91 See Bar~GiIl, supra note 76, at 1425M26.
92 Jd. at 1426-28.
9.1 Clulrles R. Plott & Kathryn Zeiler, The Willingness /0 Pay-Willingness 10 Accept Gap, the "Endowment Effect, " Subject
Misconceptions and }bperimental Procedures for Eliciting Valuations, 95 AMERICAN ECONOMIC REVIEW 530 (2005) (''The
primary conclusion derived frOIll the data reported here is that observed WTP-WTA gaps do not renec! a fundmnental feature of
humun preferences. That is, endowment effect theory does not sccm to expluin observed gaps. In addition, our results suggest that
observed gaps should not be illterpreted as S\lpport for prospect theory").
"IDavid Levine, Is BelulVioml Economics Doomed: The Ordinmy Versus thc ExtnlOrdinmy, Max Weber Lecture (June 8, 2009),
available at hup:/lwww.dklevine.com/pi1pcrs/behnviorol-doomed.pdf. See also John List, Neoclassical1'heolJI Versus Prospecl
Themy: Evidencefrom (he Markelplace, 72 ECONOMETRICA 615 (2004) (arguing that laboratory results arc not robust to market
internetions where eompctition, expertisCl, and learning might be expected to ameliorate these binses); John A. List, Does Markel
T9:perience Eliminate Market Anomalies?, 118 Q. 1. ECON. 41 (2003) (mguing thc same); MichaelS. Haigh & John A. List, Do
Professional1ivders E.,hiM Myopic Loss Aver.vion? An Experil)u!n(al Analysis, 60 J. FIN. 523 (2005) (nrglling the smne); John A.
List & Uri Gneezy, Putfing Re1wvioral Economics (0 Work: Testingfor Giflllxchange in Labor Markets Using Field Experiments
(Nat'l Bureau of Econ. Resenrch, Working Puper, 2006) (arguing the sllme); Plott & Zeiler, sl/pm note 93. at 1 (finding that the
existence und magnitude of the "endowment effect" to be a function of experimentul procedures nnd subject misconception mlher
than individual preferences); Elizabeth Hoffman, Kevin McCabe, Keith Shachat & Vernon Smith, Preferences, Property RighfS,
and Anonymity in Bargaining Games, 7 GAMES AND ECONOMIC BEHAVIOR, 346 (1994) (llrguing that experimental results
themselves are thc product of experimental procedures and sul>ject misconception mther than individual preferences).
95 See Levine, supra note 94, ut 10.
Evans llnd Wright Effect ofCFPA on Credit Availubility

31
Although we believe that regulators and policymakers should be aware of some of
these new behavioral studies, and may even find useful insights from them, there is hardly
a consensus among economists that these studies or their findings are sufficiently robust or
accepted to provide the basis for regulators to substitute their judgments for consumers. 96
Unfortunately, many of the behavioral law and economics scholars, including the
developers ofthe CFPA, have leapt from a limited and controversial set of academic
studies to radical proposals in which the government substitutes consumer decisions with
its own preferences. As Professor Jeffrey Rachlinski of Cornell University School of Law
notes, "virtually every scholar who has written on the application of psychological
research on judgment and choice to law has concluded that cognitive psychology supports
institutional constraint on individual choice.,,97
In concluding that regulators can (and would) make better choices than consumers,
behavioral law and economics proponents tend to forget that regulators are human too and
subject to some ofthe same "cognitive biases" as regular people. 98 Judge Richard Posner,
among other cdtics, has argued that regulators are just as likely to suffer fi'om cognitive
biases as consumers and regulatory 'nudges' therefore have significant potential to do
more harm than good. 99 Regulators are, moreover, typically insulated from the incentives
to mitigate these errors through education or other means that private actors face in
competitive markets.
The CFPA Act is therefore predicated on the view that consumers fi'equently make
irrational decisions especially when it comes to financial products and that the government
would make better decisions for consumers and should establish a "supernanny" to protect
consumers from themselves. These advocates have not made an adequate case for this
radical approach to government intervention in the market.
There is a further concern. The legal scholars who have proposed and designed the
CFPA follow in the tradition of the 19th century moralists who believed that credit was the
"great tempter."lOO These scholars appear to believe that borrowing money imposes great
costs on consumers without providing concomitant benefits. They would therefore favor
regulations that sharply constrain the ability of consumers to borrow money. They also
96Id.
91 Jeffrey J. RaChlillSki, The Uncertain Psychological Case for Paternalism, 97 Nw, U. L. REV. 1165 (2003).
911 Most of the experimentul evidence that shows "irmtional" behavior has been conducted with college and graduate students and is
perhaps more representative afthe college-educated people who work at regullltory agencies thrm tIle Ilverage Anlerican who
borrows money.
99 Richerd Posner, Treating Financial Consumers as Consenting Adults, WALL ST. 1.. July 22, 2009, available at
http://online.wsj,com!article/Sn 1000 1424052970203946904574302213213 148166.html.
100 BACHELLER. supra note 22, at 116 (Harper & Brothers 1912).

32
share the hubris of the 19'h century moralists in thinking that they know better than
consumers what is good for them. Irving Bacheller's 1912 screed, Charge Itl, expounded
this philosophy in no uncertain terms. Railing against the "evils of credit" Bacheller
argued against one of the financial innovations of the early 20th century-the personal
checkbook-which he insisted would tempt consumers to spend too much money.IOl
V. Effects of the CFPA Act on Access to Consumer Credit and Economic PerfOimance
The Treasury's CFPA Act of2009 would likely inflict significant collateral
damage on consumers, small bnsinesses and the economy. It would:
• reverse the long-term trend towards the democratization of credit that has
especially helped socially and economically disadvantaged individuals;
• reduce the number ofjobs created in the economy by making it harder for
the new firms that create most jobs to access critical consumer credit; and,
• slow economic growth through reduced consumer spending and job
creation.
Under plausible yet conservative assumptions the CFPA could also:
• increase the interest rates consumers pay by 160 basis points;
• reduce consumer borrowing by at least 2.1 percent; and,
• reduce the net new jobs created in the economy by 4.3 percent.
These impacts would lead to a significant long-term drag on economic performance and
slow economic recovery.
This section explains the basis for these conclusions. Our analysis proceeds in
four steps. Part A provides an overview of the major provisions of the CFPA Act. It
shows that the Act would lead to a radical change in consumer protection law in addition
to creating a highly intrusive agency that wouId impose significant costs on lenders. Part
B examines the impact of the provisions of the CFPA on the cost of providing credit and
the availability of new and existing lending products. It finds that a combination of an
increase in litigation exposure and increased regulatory compliance costs and risks would
likely increase the cost of providing credit products, particularly new ones. It could also
result in credit products being withdrawn from the market altogether while deterring the
introduction of innovative products. Part C shows that under plausible assumptions, these
WIld
Evans rmd Wright-Effect ofCFPA on Credit Availability

33
increases in costs and restrictions in innovative products resulting from the CFPA could
lead to a significant increase in the cost of credit, a reduction in credit availability, and a
significant loss ofjobs. Part D explores the implications of a CFPA-induced credit crunch
on the overall economy.
A. Overview of the CFPA Act

There are two broad aspects of the CFPA Act that will affect the lending market.
First, the CFPA Act would radically change existing laws on consumer financial
protection. Second, the CFPA Act would create a new agency that would have the power
to become directly and significantly involved in determining whether, how, and on what
terms covered businesses would be able to pI'ovide credit to consumers.
1. Legal Changes
The CFPA Act would limit the federal preemption of consumer protection
regulation of nationally chartered financial institutions. 102 TheCFPA Act specifically
allows states and municipalities to adopt more stringent regulations than those adopted by
the CFPA. 103 Rather than providing a uniform set of regul~tions governing financial
consumer protection, the CFPA effectively provides a "floor" on regulation, exposing
banks to substantial compliance costS. 104 The Treasury Depm1ment's Financial
Regulatory Reform plan seems to suggest even further that the CFPA would actively
encourage state and local enforcement actions. lOS Consumer protection requirements for
lending products could theretore vary across states and possibly municipalities. 106
Moreover, historically the FTC has imposed important restraints on the judicial
interpretation of state consumer protection legislation, encouraging uniformity among
states and consistency with federal consnmer protection regnlation as well as reducing the
possibility of interpretations that are not in consumers' best interests. The CFPA Act
would limit those constraints and thereby permit a greater degree of variety and
inconsistency in regulations. 107
102 CFPA Act,slIpra note 1, at § 1041 (a)(l ).

10) !d. III§ 1041(b).
11M Id. The CFPA Act further goes on [0 provide for consullation between the proposed Agency and stllte Attorneys General for
potentiElI simu!!llneOllS suits under the CFPA Act and more stringent state law. !d. at § I042(b).
lOS New Foundulioll, supra note 1, III 50~5t.
105 CFPA Act, supra note I, at § 1041 (b).
107 See Henry Butler & Jason Johnson, Consumer Harm Acts? An Economic Analysis o!SI{J{/i COni/lime,. Protection Ac/~' (Northwestern
Law & Economics Research Working Paper, No. 08~02, April 24, 2008), (lvailable at http://ssm.com/abstract=1125305.

34
--- - -- ---- --
The CFPA Act would also change consumer protection laws as applied to financial
products. The new agency is authorized to take action to "prevent a person from
committing or engaging in an unfair, deceptive, or abusive act or practice under Federal
law in connection with any transaction with a consumer for a consumer financial product
or service."lo8 The new agency is not required to define which practices are "unfair" or
"deceptive" in a manner that comports with longstanding and continually developing
jurisprudence guided by the Federal Trade Commission under Section 5 of the FTC
Act. 109 Moreover, the term "abusive" is new to the federal and state consunler protection
landscape and thus the CFPA Act of 2009 creates a new legal theory under which lending
practices can be found unlawful if deemed "abusive" to consumers. 11O Further, while the
CFPA's ability to declare a practice "unfair" requires at least a superficial analysis of its
costs and benefits, no such requirement exists with respect to its powers to identify and
impose sanctions against practices it deems "abusive.,,111 The CFPA Act also provides for
a new "reasonableness" standard under wIlich lenders could be liable ifthey have not
provided "reasonable" disclosures to consumers. I 12
The combination of creating a floor for state and municipal regulation, adding the
abusive practices and reasonableness standard, and reopening the interpretation of unfair
and deceptive practices is a toxic brew. It would likely subject lenders to regulations that
vary across geographic lines and uncertainty over how diverse federal, state and municipal
regulators and ultimately the courts will define unfair, deceptive, abusive, and reasonable
practices. We return to the cost implications oftbese legal changes below.
2. The New Agency

As discussed above, the CFPA would have the ability to impose administrative fines
and other sanctions based on its interpretation of what constitutes "unfair, deceptive or
abusive" practices and whether lenders have acted reasonably. Within this legal
framework, the proposed CFPA would have far-reaching authority to ban consumer
108 CFPA Act, supra note 1, at § 1031.

109 !d. at § 1031(0). Specifically, the proposed Agency merely need "consider established public policies liS evidence to be considered
with all other evidence" in concluding whether or not a given business practice is "unfair" under the CFPA Act. Id. At least one
Federal Trude Commissioner hEls expressed concerns about this fouture of the CFPA. See William E.Kovacic, Commissioner,
Federal Trade Commission, Statement on the Proposal to Create II Consumer Financial Protection Agency to the Committee on
Energy and Commerce and the Committee on Financial Services (July 28, 2009), {Ivailable al
http://www.ftc.gov/speeches/kovncic/090728stmtrecord.pdf. Commissioner Kovncic notes tlmt "conflicts in interpretation and in
litigation stl1ltegies;along with an increase in litigation over jurisdictional questions, will adversely affect every core area of
consumer protection for which the FTC will conthl\le to exercise primary responsibility."
110 CPPA Act, supra note 1, at § 1031.
III !d. at § 1031(e}.
'" Jd. ,( §§ 1041(,)(1)-(,)(2).
Evans and Wright-Effect ofCFPA on Credit Avnilability

35
lending products, to require lenders to offer products designed by the CFPA, and to
require extensive disclosures.
Banning products. The CFPA would have the authority to restrict or ban consumer
lending products. Il3 Given the express disapproval of the proponents ofthe CFPA of
widely used lending products such as subprime mortgages and credit cards, the CFPA
would likely use its authority to prevent consumers from obtaining access to products that
the consumers want but that the CFPA subjectively believes are bad for them. Professor
Barr and his co-authors, for example, have suggested that the government should "specify
terms and conditions that are 'safe' and qualify for being offered as a standard credit
card." At the same time, they argue for restricting consumer access to credit cards that do
not meet the government-imposed requirements and for "increased liability risk if the
disclosure is found to have been unreasonable" after the fact. 114
Mandated provision of "plain vanilla products". Under the Administration's plan
the CFPA could consider requiring the lender to make another product of the CFPA's
design also available to the consumer at the same time.I!S It could insist that consumers
explicitly reject the "plain vanilla" product before the lender could offer its own
product. 116
Regulatory review of new products. The CFPA could subject new products to an
extensive review process, including one in which the CFPA must approve mandatory
disclosure language for the product. 117 The CFPA cou Id also require firms to provide
detailed information on. consumer choices, including "warnings to consumers about the
heightened risks" of using alternative products not pre-approved by the CFPA." 8
B. Effect ofthe CFPA Act on the Cost of Providing Credit and the Availability of
Consumer Lending Products
I.Impact of Costs
These provisions of the CFPA would likely raise the cost ofproviding credit
significantly. We begin with the legal changes. To begin, it is important to recognize that
any new regulation, no matter how simple or well intended, can result in (or add to) a
IlJ Jd. fit §§ 1031, 1037.

114 Barr et al., supra note 78, at 15.
m CFPA Act, supra note 1, at § I036(b)(1).
'" Jd. al §§ I036(b)(I)(13); 1036(b)(2).
117 [d, at §§ 1032(n); 1034(a), (b).
1181d. at § 1036(b)(I)(A).

36
mass of conflicting interpretations and litigation, the net result of which is higher costs and
greater uncertainty for covered businesses. The Truth in Lending Act provides a good
example. 119 A week before the law became effective in 1969 there were 34 official
interpretations ofthe regulation. Ten years later, federal courts were inundated with more
than 13,000 Truth-in-Lending lawsuits. By early 1980, the Federal Reserve Board had
published more than 1500 interpretations attempting to provide some clarity to minimize
the uncertainty created by the varying decisions made by the courts. Today, compliance
with the Truth-in-Lending law requires a great deal of resources. The CFPA Act is likely
to lead to a bureaucratic and legal mess far greater than the Truth-in-Lending Law
generated. That is because the CFPA Act is a much more expansive and far-reaching
piece of legislation, and, most imp011antly, unlike the Truth-in-Lending law, the CFPA
Act provides for the states and municipalities to have their own laws and regulations
which will also require interpretation.
The CFPA Act wou ld also result in financial institutions facing significant legal
costs for lawsuits emanating from states and localities. To begin with, the states could sue
lenders under Section 1031 ofthe CFPA Act which prohibits "unfair," "deceptive," or
"abusive" lending practices. 12D Other industries that have been exposed to state litigation
have inclirred significant costs as a result, which they have had to pass on to consumers. 12l
Consumers of pharmaceutical products have incurred costs in the tens of billions of dollars
as a result of state product liability litigation according to one study.122
Lenders would also face significant costs in the form of hesitant reactions in the face
of considerable uncertainty. They would not know for some years how the courts will
ultimately define unfair, deceptive, and abusive practices and what constitutes a
reasonable disclosure of information. During this period, lenders would have difficulty
assessing what they are required to do under the new law or what their financial exposure
119 See Thomas A Dmkin, The Impact ofthe Consumer Financial Protection Agency Act on Small Business, US CHAMBEIl. 01' COMMEIt.CIl
MAGAZINIl, September 23, 2009, available at http://www.usch£1mbermugazine.com/publicatiolls/reports/O90923_cfp'Lsb.hlm (last

visited Scp. 26, 2009).
120 crrA Act, supra note 1, at § 1031.
111 kl.,'ee Professor Michael 1. Saks' letter to Sen. Ernest Hollings, S. 687. The Product Liability Fairness Act Hearing Before the
Subcommittee on Consumer of the Committee on Commerce, Science, and Transportation, United State Senate, One Hundred Third
Congress, first session, September 23, 1993, 126. Even though the average price effect of liability costs may be small across
industries, in some scctors it cun be quite Inrge. See TomEis J. Philipson & Eric Sun, Is the Food and Drug Admln/strallon Sqfe and
E.ffective?, 221. EeoN. PERSP. 85,94-95 (2008) (suggesting that the deadweight losses to consumers and producers from the price
increase dlle to product liability litigation in the pharmaceutical indus!lY is in the tens ofbilliollS of dollars); Puul Rubin & Joanna
Shepherd, Tort Reform and Accidental Deaths, 50 J.L. & EeON. 221 (2007) (estimating that product liability hus increased
accidentu\ deaths by raising the prices of safety"enhancing goods and services); Richard L. Manning, Changing Rules in 7'orl Law
and the Marketfo/' Childhood Vaccines, 37 J. L. & EeON. 247,273 (1994) (suggesting thllt the price ofVllccines went up twenty-
fold aHer product liability imposed);
I2l See Philipson & Sun, supra note 121.
Evans and Wright-Effect of crrA on Credit Availability

37
would be for failingto meet legal requirements across diverse geographic lines. In
addition, the exposure to state and local litigation would pose the possibility that financial
institutions would face penalties that could lead to severe losses or even bankruptcy.
Businesses, of course, must be compensated for bearing risk and unceliainty.
As noted above, the CFPA Act simultaneously opens consumer financial protection
to diverse and inconsistent state and local regulation, allows regulators to adopt new
interpretations of traditional consumer protection terms such as unfair and deceptive
practices, and adds new concepts of abuse and reasonableness which are undefined in the
consumer credit context. These three features have a multiplier effect and would likely
result in an exponential increase in the cost and uncertainty of complying with consumer
financial protection laws and regulations.
In addition to the changes in the legal landscape the new agency created by the
CFPA Act would likely impose other significant costs on consumer lending products and
providers of those products. Each loan would require additional paperwork and other
compliance costs. This increase in papelwork is not merely speculative. According to the
Act, "The Agency may on a periodic basis ... require reports from a covered person for
purposes of ensuring compliance with the requirements of this title, the enumerated
consmner protection laws, and any rules prescribed by the Agency ... ,,123 Granting the
proposed Agency broad powers to create rules, this provision alone allows for potentially
unlimited reporting on an as-of-yet undefined amount of as-of-yet unwritten
administrative regulations.
The intensive review process envisioned by the CFPA Act would be particularly
. "01'
expensIve fi new pro duets. 124 F' .
<irms 1I1tro d ' new pro ducts 0 ft en ma ke numerous
uC1l1g .
subsequent adjustments in their designs in response to feedback from consumers and as

they learn about the performance ofthose products and consumer preferences. Providers
of new consumer financial products would have to submit these products to the CFPA's
review process before they have gotten any market feedback and, in effect, before these
products were "fully bal<ed." Normal changes in product design following the
introduction of the lending product could expose the firm to administrative or enforcement
actions uuless submitted to the CFPA beforehand for further review and approval,
exponentially delaying a firm's ability to offer consumers improved products. The lack of
consumer experience is also a problem for the agency which would be maldngjudgments
123 CFPA Act, supra note 1, at § l022(c)(1).

124 [d. at § l036(b)(1).
Evans nnd Wright Effect ofCFPA on Credit Availability

38
on disclosure and other issues with at best limited information from consumers. As
Federal Trade Commissioner Thomas J. Rosch has noted, "there is no evidence that this
proposed new agency has any core competency in protecting consumers in the financial
marketplace.,,125 It is therefore likely that the CFPA Act's "plain vanilla" requirements
would induce consumers to take products that would be poorer choices than the consumers
would have picked on their own. 126 The CFPA Act would therefore likely impose a
significant increase in the costs and risks of introducing new products.
The "plain vanilla" requirement is likely to impose even further costs and risks on
lenders. Consider a lender that introduces a new lending product. The lender determines
whether the introduction of that product will generate enough profit to justifY its
investment in the product along with its exposure to litigation and regulatory costs.
Suppose it decides before considering the effect of the "plain vanilla" requirement that it
would be profitable to make the product available to constUners. Now it must factor in the
CFPA's decisions on a "plain vanilla" product. Some, and perhaps many, consumers may
decide to take the. "plain vanilla" version. That version may be less profitable than the
version designed by the lender. As a result, the new product may not yield an adequate
return when the profits from both the product designed by the lender and the "plain
vanilla" product designed by the CFPA are taken into account. Alternatively, the lender
may have to'raise fees on both the "plain vanilla" product and its own product to cover
revenue losses associated with the diversion of customers from its own product to the
"plain vanilla" product. Finally, in any event, the lender would need to factor in the risks
associated with the CFPA's decisions on how to design a plain vanilla product when
making decisions on investment in a new lending product. To compensate for that added
risk the lender would have to increase the interest rates and fees for new products that it
introduces.
Overall, the CFPA Act would likely increase the costs of supplying credit to
constUners. The variable cost of lending would increase as a result of the paperwork
requIrements and as a result of the increased litigation exposure that each loan presents.
That would directly result in an increase in the interest rates and other fees associated with
12, 1. Thomas Rosch, CommissiOlier, Fedeml Trade Commission, Statement 011 the Proposal to Create a Consumer Financial Protection
Agency Befprc the Committee on Financial Serv(ces (July 21, 2009), available at
hltp:/lwww.ftc.gov/speecheslrosch/090721roschstalcmellt.pdE
126 The CFPA Act requires the new agency to su~iect its T\lles and regulations to a cost-benefit test. Other federol agencies lmve the
same requirement yet there is little evidence that it is taken seriously. See gen"erally Robert W. Hahn & Cass R. Sl1llstein, A New
Executive Order/o!' Improving Federal Regu/alion?Deeper and Wider Cost-Benefit Analysis, 150 U. PA. L. REV., 1489 (2002),
Moreover, the proponents of the agency tend to see few benefIts in consumer borrowing Ellld many costs which suggest thllt the new
agency, ifit "dopted iI simil"r view, would tind that restrictions all cOlisumcr credit availability puss u cost-benefit tcst
Evans and Wright-Effect of CFPA on Credit Availability

39
extending a loan. In addition, the CFPA Act would increase the fixed costs of making a
particular lending product available to consumers. New products in particular would face
a lengthy and involved review process, require the development of disclosures that meet
the agency's reasonableness requirement and could satisfy its unfair, deceptive and
abusive practices requirements. Lenders offering new and innovative products could also
face financial exposure j}om litigation over the provision ofthat product. As a result
lenders would have to raise the interest rates and fees on products to cover these costs or
alternatively not make those products available at all.
2. Impact on the Availability of Consumer Lending Products

We have just seen that the CFPA Act would likely increase the prices that
consumers pay for credit products. Consumers are actually harmed in two ways. First,
higher prices directly curtail the amount of credit available to consumers, who will be
worse off because they no longer get to enjoy the benefits oftllat credit. For the credit that
they would still obtain, consumers would pay higher prices and have less money to spend
on other things. As we explain in the next section, these changes in prices and
consumption are likely to be very costly.
The second and more serious concern with the CFPA Act is that it would prevent
consumers from obtaining certain credit products at all. Consmuers would lose the entire
benefit they were previously obtaining from those products. In some cases consumers
may have no other lending product to turn to and would be liquidity constrained. There
are two reasons to believe that the CFPA Act would in tact completely cut off consumer
access to certain credit products and possibly to credit altogether. The first follows
directly from the preceding discussion: lenders would not make some lending products,
particularly new ones, available because they would not be profitable given the costs and
the risks they face under the CFPA Act regulatory regime. We focus on the second one
here: the CFPA itself is likely to directly prevent consumers from obtaining lending
products that they would like to use.
The CFPA would have the authority to ban or restrict certain lending products. 127
Of course, the likelihood that the new agency would ban various 'consumer lending
products that consumers would use ifthey were available does not by itself mean that
consumers would be harmed. The well-meaning scholars who have designed the CFPA
117 CFPA Act, supra note 1, at §§ lOJ6(b)(1), 1039.
Evans l1nd Wright-Effect ofCFPA on Credit Availability

40
Act believe that they have provided theoretical and empirical evidence that demonstrates
that various lending products, or significant variants ofthese products, harm consumers.
They believe that many consumers use these products because they are misinformed and
irrational. Their view is misgnided for at least two reasons.
First, as we described in Section II, consumers borrow money for sound and
rational reasons. They can improve their level of well-being by borrowing against future
incomes so that their enj oyment of life is not unnecessarily concentrated in middle age.
Consumers also benefit from borrowing for many other reasons: a temporary short-fall of
income, sudden expenses, wanting to start a business, or wanting to make a long-term
investment, such as a home. In short, the fact that consumer behavior does not conform to
paternalist advocates' subjective valuation offlIture time or income does not ipso facto
render consumer choices irrational or welfare-reducing. Indeed, the burden is on those
who would deny consumer's own evaluation of their welfare to prove that consumers are
wrong and that the CFPA would consistently make better judgments the galns fi'om which
exceed the costs the CFPA imposes on lenders and borrowers.
Second, consumers are necessarily in a better position than regulators to decide on
what products are best for them in their particular circumstances. Individuals know their
own preferences such 'as their tradeoffs between risk and ce11ainty and between
consumption and debt. Consumers also have more knowledge of their own aspirations,
needs, futlU'e inc6mes, and other life plans than regulators could ever have. We are highly
skeptical that regulators could better assess which consumer lending products should be
offered to consumers than lenders who have a direct competitive interest in satisfYing
consmners' needs and tastes.
Professors Bar-Gill and Warren argue that regulators should prevent the sale of
harmful consumer lending products just as they prevent the sale of exploding toastei·s.
The analogy is inapt and, more importantly, does not reflect the type of consumer lending
regulation that these designers of the CFPA have in mind. Consumers do not want to buy
toasters that have a significant risk of explosion and they can benefit from government
regulations that require manufacturers to make toasters safe.. Consumers do want to
borrow money even though there is a risk that they will have trouble paying it back or that
tlle house they bought does not appreciate as much as they had hoped. Consumers
knowingly choose to take these risks all the time. The advocates of the CFPA Act are not
seeking to prevent lenders from offering consumers the credit equivalent of an exploding

41
toaster. Rather, the CFPA Act's advocates believe that consumers should be restrained
from choosing products and services that significant numbers of consumers have willingly
used safely, to their advantage personally, and to the great benefit ·of society as a whole.
The CFPA Act's advocates would have consumers "nudged" into using only those
particular products that the regulators have approved for them. This approach to
regulation would be like having the Consumer Product Safety Commission prohihit the
sale of particular toasters that they believe consumers do not really need, or requiring
toaster manufacturers to offer consumers a "plain vanilla" toaster in addition to, and even
jn preference to, their feature-laden models.
We showed earlier that financial innovation expanded the supply and accessibility
of consumer credit enormously between the start of the 1980s and the onset of the current
financial crisis. During that period of time innovations in risk analysis and securitization,
combined with the introduction ofmffilY new credit products, enabled millions of
Americans to borrow, many of whom had limited, more expensive, or no previous access
to credit. Millions were able to buy homes-which, for the vast majority, were good
investments. They were also able to borrow against future income to buy many common
consumer durables-----everything from automobiles to refi'igerators to televisions-that
households buy especially when they are YOlmger. The financial innovations helped
American consumers weather some stormy economic times including the period of high
interest rates ffild inflation uncertainty iti the late 1970s and early 1980s, the stock market
crash of 1987, and the collapse ofthe dot.com bubble and theunceliainty following 9/11.
Innovative consumer lending products also helped accommodate a massive increase in
household formation as a result ofthe baby boom generation-and their children-entering
the workforce.
These financial it1l10vations also relieved the liquidity constraints that prevented
many socially and economically disadvantaged Americans fi'om gaining access to credit at
all or that had forced them to turn to very high cost alternatives. More minorities, single
parents, and low-income households were able to get mOltgages, credit cards, and other
lending products that markedly improved their lives. Financial institutions were able to
lend money to more high-risk honseholds becanse these institutions had tools that enabled
them to better identify and manage the risks and becanse these lenders conld diversitY
their risks throngh securitization and other risk management tools.
Evans lind Wright--Hffect ofCFPA on Credit AVlliiabiJiLY

42
Based on our analysis of the CFPA Act and how its proponents envisaged the
CFPA Act to regulate consumer financial products, we believe that the most likely
scenario is that, if enacted, the CFPA Act would reverse the increase in the availability
and democratization of credit that consumers have benefited from over the last thiIty
years. The CFPA Act would result in a credit clUnch for many Americans who would
either not have access to credit or have to turn to inferior sources of credit such as pawn
shops and payday lending.
C. The Estimated Effects of the CFPA Act on Economic Welfare 128

The CFPA Act will impose a significant cost shock to lenders. One way to
understand the possible impact of the Treasury's CFPA Act is to examine other shocks to
the lending industry. A major part of our concern with the CFPA Act's impact on lending
costs is that the Act will result in significant state-by-state variation in regulation, which
will necessarily impose increased transaction costs on lenders. One might immediately
intuit that the greater the variation amongst states, the greater these costs will necessarily
be. The 1994 Interstate Banking and Branching Efficiency Act (IBBEA) is one such
shock that provides empirical data by which one can assess the possible effect of the
CFPA Act. The IBBEA allowed bank and bank holding companies to expand across state
lines; prior to its passage there had been virtually no interstate branches. The IBBEA,
however, preserved states' rights to impose various costs on the expansion of ont-of-state
banks in their states and some states did so. Thus, the "IBBEA shock" did precisely the
same as the proposed CFPA Act would do: it ended federal preemption, causing a
proliferation of divergent state laws impacting lending costs.
Rice and Strahan examine the impact of the IBBEA on the interest rates paid by
small finns. 129 They estimate the effect of these state-imposed restrictions on the interest
rates paid on bank loans by small businesses by comparing bank lending in states that
imposed restrictions with those that did not.. They find that the interest rates paid by small
businesses were 80 to 100 basis points higher in states with the most restrictive rules on
bank expansion compared with the states with the least restrictive rules.
128 Professor Adam Levitin argiles that these estimates are speculative, A Critique a/Evans and Wright's S!udy of/he Consumer
Financial Protection Agency Act 1 (Georgetown University Law Center, Public Law Research Paper No. 1.492471, October 22,
2009), avadable at hl1p:J/papcrs.ssm.com/soI3/pllpcrs.cfm?nbstracUd=149247I. We disngree with his comments flS disclIssed in
David S. Evans and Joshua D. Wright, A Response to Professor Levitin on the Effects afthe Consumer Financial Protection Agency
Act of2009 011 Consumer Credit (George Mason Law llnd Economics Research Paper No. 09-56, November 3, 2009), available nt
http://papers.ssrn.com/solJ/popers. elin? IlbstmcUd= 14 99261.
119 Tom Riee & Philip E, Stm1mn, Does Credit Competition -1fJi~ct Small Firm Finance? (forthcoming 2009), available at
htlp://www2 ,be,eel ul-strnhan/Crcditc ompelition_J une2009 ,pdf.
Evans Ilnd Wright-Effect ofCFPA on Credit Availability

43
We take the conservative 80 basis point regulatory penalty as a lower bound on the
effect ofthat the CFPA Act would have on interest rates. The regulatory restrictions
imposed by the states following the lBBEA were relatively modest and require little in the
way ofjudicial interpretation. They included setting a minimum age of the target
institution, restrictions on acquiring individual branches, imposing a statewide deposit cap,
and preventing in some cases setting up a new branch. The scope of the CFPA Act is
euormous in comparison. It would constitute a highly intrusive federal regulatory agency,
require lenders to comply with differing regulations across 50 states and their component
municipalities, create a costly product review process, and expose lenders to litigation
under untested laws by federal, state and municipal enforcers. There is also an enormous
difference in the degree of uncertainty that banks would face. The restrictions that banks
faced in some states following the lBBEA were clear and known with certainty; there was
a precise age requirement or deposit cap imposed by a state. These restrictions did not
impose significant costs on banks deriving from uncertainty with regard to how the
restrictions would be interpreted and change over time. The CFPA Act, on the' other hand,
creates considerable uncertainty because many ofthe federal and state rules' concerning
what lenders can and cannot do are vague and mnbiguous, and because the application of
the "unfair," "deceptive," Habusive," and "unreasonableness" standards by the regulators
and courts will remain highly uncertain for many years. 130
It is therefore plausible that the CFPA Act would impose a multiple ofthe costs on
lenders than what the states imposed through geographic branching restrictions following
the passage of the lBBEA. We repOlt estimates based on the CFPA Act having the smne,
twice, and three times the impact on interest rates as the state-imposed geographic branch
restrictions studied by Rice and Strahan. Those estimates imply that the CFPA Act would
increase interest rates by 80 basis points ifthe iinpact ofthe CFPA Act's regulations was
the same as the geographic restrictions, 160 basis points if the impact of those regulations
was twice as costly and 320 basis points if it was three times as costly. We take 160 basis
points as the likely lower bound on the effect ofthe CFPA Act on interest rates.
Consumers would not just pay more for credit. In response to the increased prices
consumers would use less credit, with a resulting impact on conslllner spending. Finmlcial
IJO For an illustrative example, state Consumer Protection Acts (CPAs) modded on the Federal Trade Commission Act's prohibitions of
"unfair" and "deceptive" business practices have resulted in significant variation in substantive consumer protection regulation amI
remedies between st!ltes, with thut variation creating significullt uncertainty and litigation. See Semle Civil Justice Institute, Stille
Consumer Protection Acts: An Empirical Investigation of Private Litigation (November 2009), available at
http://www.law.norlhwestern.edu/semlecellterluploads/CPA._ProoC113009_final. pdf.
EVllns and Wright-Effect ofCFPA on Credit AVlliiabilily

44
economists have also nsed changes in nominal credit card interest rates to estimate a long-
run debt elasticity in consumer credit markets of -1.3 .131 That is, a I percent (a 100 basis
point) increase in the cost of debt would reduce the amount oflong-run debt acquired by
1.3 percent. Combining these estimates, we can generate a rough prediction of the impact
of the CFPA on interest rates and credit supply assuming that the regulatory costs would
generate interest rate effects that are equal to, twice as bad, and three times as bad as the
state restrictions on interstate banking. An 80.basis point increase would result in a 1.0
percent reduction in amount of long-term debt, a 160 basis point increase would result 2.1
percent reduction in the amount of long-term debt, and a 320 basis point increase would
result in a 4.2 percent reduction in the amount of long-term debt. These estimates should
be interpreted as lower bounds on consumer responsiveness to changes in interest rates
since they are calculated with data from the 1990s and, at the current dramatically reduced
levels of consumer credit available after the financial crisis, more consumers are liquidity
constrained and thus more sensitive to interest rate changes. We take 2.1 percent as the
likely lower bound on the reduction in credit borrowing for these reasons but also because
the CFPA Act may also ban certain lending products that are the only way for some
consumers to borrow.
The reduction in credit availability would be likely to generate significant losses
for consumers. The economic literature provides some estimates of the effects of
regulatory restrictions on access to credit products likely to fall under the CFPA's scope.
For example, Morse finds that restrictions on financial products can exacerbate the
negative impact of disasters, including 1.2 more foreclosures per 1,000 homes and 2.67
more larcenies per 1,000 homes. 132 This analysis suggests 'that the harmful consequences
of restrictions on lending products will be felt not only by consumers facing personal
emergencies, but also by communities that are left less able to rebound quickly from
community shocks. Federal Reserve economists Morgan and Strain reach similar results,
finding that restrictions on consumer financial products in Georgia and North Carolina
resulted in more bounced checks, more complaints about lenders and debt collectors filed
with the Federal Trade Commission, and more bankruptcies. 133 Similarly, Karlan and
III DllVid Gross & Nicholas Souleles, Consumer Response tv Changes in Credit Supply: Evidencefrom Credit Card Data (Wharton
Business School, Working Paper, Feb. 4,2000), available at hltp:/lknowledge.wharton.upenn.edu/puperslI16I.pdf These estimates
are based on credit curds llnd could be different for other debt products.
132 Adair Morse, Payday Lenders: Heroes or Viliains? (Booth School ofBusiness, Working Paper, January 2009).
m Donald P. Morgan & Michael R. Strain, Payday Holiday: How Households Fare after Payday Credit Bans 4~5 (Fedeml Reserve
Bank of New York, Working: PElper, Feb. 2008). See also, Jonathan Zinman, Restricting Consumer Credit Access: Household
Survey Evidence on Effecls Around fhe Oregon Rale Cap 2M5 (Dartmouth College, August 2009).
Evans and Wrigbt Effeet ofCFPA on Credit Availability

45
Zinman find that access to consumer financial products can significantly improve
household outcomes ranging from job retention to staving off hunger. 134
The CFPA Act credit squeeze is likely to negatively impact small businesses and
job creation. 135 Small businesses can have a difficult time obtaining credit because they
present lenders with significant adverse selection, moral hazard, and asymmetric
information problems and because they have high failure rates. Indeed, one estimate
suggests that approximately 20% of firms with fewer than 20 employees did not bother to
apply for credit because they assumed they would be denied.
Small businesses necessarily rely extensively on consumer financial products.
These include home equity loans, personal loans, auto title loans and credit cards. 136
Indeed, almost half of firms with fewer than 20 employees lIse a consumer credit card to
help finance their businesses. 137 These small business owners would encounter the same
increase in the cost of credit as regular consumers and face the same prospect of not being
able to get credit at all. Since small businesses are notoriously ti'agile these increases in
. the cost of credit, or denial of credit, could have far reaching effects on the viability of
small firms.
As a result of its impact on small finns that rely on consumer credit, the CFPA Act
could have serious effects on job creation. Most net new jobs in the United States are
created by new firms, which by-and-Iarge begin small- often as sole proprietorships.138
These small businesses account for a disproportionate share of new job creation in the
United States. 139 Startup finns with fewer than 20 employees accounted for 86.7% of net
job creation in the United States in 2005. 140 As noted above, about half ofthese
businesses relied on credit cards for financing and others rely on other forms of consumer
financing.
134 Dean Karlan & Jonathan Zinman, E:'1Janding Credit Access: Ufing Randomized Supply Decisions (0 Estimate the Impacts
(Innovations for Poverty Action, Working Paper, JanLHuy 2008).
m Durkin, supra note 118, at 1.
1J6 Charles Ou and Victoria Williams, Lending to Small Businesses by Financial /n,~tillitions in the United Stales, in SMALL
BUSINESSES IN Focus: FINANCE, A COMPENDIUM OF RESEARCH BY THE SMALL BUSINESS ADMINISTRATION'S OFFICE OF
ADVOCACY (2009).
137 Ill.
138 Net new jobs takes into account the fnct that new films both crcatcjobs find, when they fail, destroy jobs.
l39 John Haltiwanger, Ron Jarmin & Javier Miranda, Business FOl'nwfion and Dynamics by Business Age: Rcsults/rom thIJ New
Business Dynamics Slalistics, (Working Paper, May 2008), available at
http://cconweb.umd.edu/-haltiwan/bds_paper_CAEO_may2008_may20.pd r.
l~O In 2005 net job creation at new firms with less than 20 employees was 2,15 t ,513 while total net job creation across all firms was
2,481,097. See US. Census Bureau, Dynllmic B\lSiness Stntistics, BDS Dataset List, Firm Age By Finn Sizc, available at
http://www.ces.censlls.gov/index.phplbdsibds_databaseJist. Over the period 1987-2005 the net new jobs (taldngjobs creEltcd minus
jobs lost) by new firms with less than 20 employees exceed totul net new jobs because many older and hnger firms hud net job
destruction.
Evans and Wright-EITect ofCFPA on Credit Avnilobility

46
We believe that it is plausible that the CFPA Act could result in a significant
number of aspiring new small business owners not being able to obtain the consumer
credit necessary to get their businesses off the ground. An extensive body of economic
literature demonstrates that entrepreneurs are liquidity constrained and that lack of access
to credit deters many from statting new businesses; the flip side of this finding is that a
contraction in the supply of credit increases the number of entrepreneurs that are liquidity
constrained and thereby reduces the number of start-ups. 141 Suppose that the increase in
credit pdces and reductions in the availability of credit results in only a 5 percent
reduction in the number of aspiring entrepreneurs were not able to start their firms. Ifwe
focus just on firms with fewer than 20 employees, that could lead to the elimination of
roughly 4.3 percent (.05 x .867) of net new jobs. We believe that this is a plausible but
hardly preCise estimate of the order of magnitude that the CFPA Act could have on
employment.
D. The CFPA Act of2009 and the Economic Recovery
The timing of the CFPA Act of 2009 could not be worse. Suppose the Act became
law by July 1, 2010. It would take many months, and perhaps yeat·s, before the agency
envisioned by the CFPA Act would begin functioning. The Administration would have to
,
make a number of appointments, the existing regulatory agencies would have to tratlsfer
staff, and the new agency would have to organize itself and hire additional staff to meet its
new responsibilities. It would then take further time before the new agency would have
the opportunity to interpret its legislative mandate and adopt rules and regulations. It
would also take time before the courts had reviewed cases to test these interpretations.
The severe limitations on federal preemption would also likely lead states and
municipalities-who would not be required to wait for the CFPA to get organized and
become fully operational-to adopt new and likely conflicting consumer lending
regulations, creating a stilted, heterogeneous set of legal regimes at the state level.
For a substantial period of time financial institutions would face great uncertainty
over the likely costs of lending to consumers for the reasons discussed above; whether
their financial products would be approved by the new agency; the natme of the plain
vanilla products and the effect of these product on the profitability of lending to
141 See David S. Evans & Boyan Jovanovic. An Bslimafed Model q(Enfrepl'eneurial Choice under Liquidity Cons/mints, 97 J. POL.
EeON. 808, 808"27 (1989).
EVRllS and Wright-Effect ofCFPA on Credit Availability

47
consumers; and the scope of their institutions' litigation exposure. We would expect
financial institutions to address these major new regulatory risks by redncing their lending
to consumers in the face of this uncertainty. In consequence of these limitations on
business activity, investors would shy away from placing their capital in firms subject to
CFPA Act authority, limiting capital growth if not actually shrinking it.
That reduction in lending would occur almost immediately after the passage of the
legislation. It would come at a time when the economy is just beginning a tenuous
recovery fi'om the deepest economic downturn in 75 years. A major obstacle to the
economic recovery is that lack of access to financing for consumers and businesses. It is
well known that many consumers and businesses in today's economic environment have
great difficulty obtaining mortgages, educational loans, automobile loans, credit card
loans, and other sources of credit. The'Federal Reserve reported consumer credit dropped
by historic rates in the last weeks of the summer 2009. It decreased from 2.74 trillion in
July 2008 to 2.47 trillion in July 2009. 142 Small businesses which rely on consumer
lending products to finance their operations have been especially hurt. 143 The CFPA Act
would deter financial institutions from expanding,consumer lending needed for the
success of these very businesses.
The ramifications of this reduction in consumer lending in 2010 and 2011 that
could occur ifthe Treasury's CFPA Act of 2009 were signed into law are quite serious.
Consumer spending is vital to any economic recovery. Encouraging sustainable consumer
spending requires encouraging policies that induce consumers to buy homes and consumer
durable goods again as well as to engage in everyday shopping. As is well known,
consumer spending has a multiplier effect, which leads to dramatic economic expansion
and the growth in jobs. With an unemployment rate of close to 10 percent and weak
consumer spending it would seem particularly counterproductive to have the government
impede credit availability by raising the costs and risks on consumer lending by financial
institutions. It is also not the time to further restrict lending to small businesses and
dampen the creation of new jobs that are important for pulling the economy to recovery.
VI. Conclusions
142 Federal Reserve StfltiStiClil Releuse G 19, September 9, 2009, available ar http://www.fedcralrcserve.gov/relenseslg19/Current/.
14l See, e.g., Joseph A. Mann, Jr., Lack afCredit Hurts ..<.,'mall Ru,~;nesse.l', MIAMI HERALD, Feb. 25, 2009, available at
http://www.miamiherald.com/business/5min/story/914255.html.
Evans lind Wright-Effect ofCFPA on Credit Availability

48
The CFPA Act of2009 proposed by the U.S. Department of the Treasury is a
misguided attempt to erect a supernanny agency that would substitute its own choices for
how and under what circumstances consumers should be able to borrow money. The
proponents of the CFPA Act have not provided a basis for adopting sweeping changes in
the regulatory structure of consumer financial protection regulation. While improving
consumer protection is needed, particularly for the non-bank institutions that virtually all
commentators identify as the source of most problem mortgages, it is hard to maintain that
the financial crisis would have been avoided by more consumer protection. 144
Short-term the CFPA Act would jeopardize the current economic recovery, and
recovery from high unemployment, because the Act would significantly raise the
uncertainty over the costs of lending consumers money. It would take several years for
the new agency to give lending institutions clear guidance and for the courts to interpret
new legal obligations on lenders, suppressing lending activity (and investment in lending
tinns) in the meanwhile.
Over the longer term, the CFPA Act of2009 would restrict the supply of consumer
credit, reduce consumer choice over how consumers can borrow, and increase the cost of
consumer credit. In doing so it would inflict collateral damage on small businesses that
often rely on consumer credit products. A significant part of these increased costs would
come from opening a flood gate of state regulation and litigation under a new vague legal
standard. The CFPA Act would also turn back the clock on successful efforts to
democratize credit-that is to make credit widely available so that all segments of
American consumers can borrow to meet their short-telm and long·term needs. It would
further make it harder for the new tirms that create most jobs to obtain credit and would
thereby lead to a permanent reduction injob creation.
144 FnDERAL RESERVE BOARD, STAFI' ANALYSIS OI'THE RnLATIONSHIP BETWEEN TI-m eRA AND THE SUBPRlME CRISIS, November 21,
2008, ava!lable 01 http://www.fcdcralrcscrve. gov/ncwsevcllts/specch/20081203_onafysis. pdf.
Evans tll1d Wright-Effect ofCFPA on Credit Avnilability

49
Updated-December 2010
Communities First Act (CFA)
Title I
Targeted Regulatory Relief for Community Banks
Section 101. Call Reports: Permits highly rated, well-capitalized banks with assets
of $10 billion or less to file a short form Call Report in two non-sequential quarters of
. each year.
Section 102. Sarbanes!Oxley: Exempts insured depository institutions with

consolidated assets of $1 billion or less from the internal control attestation
requirements of Section 404(b) of the Sarbanes Oxley Act. (Dodd-Frank provides
relief for public companies with market capitalizations under $75 million).
Section 103. Small SHes:· Requires the Federal Reserve to revise the Small Bank
Holding Company Policy Statement on Assessment of Financial and Managerial
Factors so that the policy applies to SHCs with pro forma consolidated assets of less
than $1 billion, an increase from the current threshold of $500 million. Qualifying
BHCs must not have a significant outstanding debt or be engaged in nonbanking
activities that involve significant leverage. (we should propose comparable provision
for thrift holding companies).
Section 104. SIPC: Amends Section 9 of the Securities Investor Protection Act of
1970 to provide banks with assets of up to $10 billion with insurance coverage for
bank losses incurred in brokerage accounts due to the failure of a broker dealer.
'Section 105. SEC! Accounting Standards: Require the SEC to ensure that
accounting standards truly reflect the business model of the preparer.
Section 106. FASS! Accounting Standards: Require FASB to conduct both a

costfbenefit analysis and economic benefit analysis for proposed changes to any
existing accounting standard. as well as for any proposed new accounting standard.
FASB may not issue an amended standard or a new standard unless the benefits of
such standard significantly outweigh the costs. Also, FASB may not issue any
standard which could create an undue negative economic impact upon community
banks with assets of $10 billion or less.
Section 107. Shareholder Threshold: Increases SEC shareholder registration

threshold to 2,000 from 500. To de-register stock. increase shareholder threshold
from 300 shareholders to 1700 shareholders.
*Underlined sections indicate new provisions not found in the CFA legislation introduced in
2007 during the 11 O,h Congress.
Section 108. FSOC Review: Revise FSOC review of CFPB regulations by lowering
the threshold and allowing FSOC to veto a rule that could adversely impact a subset
of the industry in a disproportionate way.
Section 109. Fed Exam Authority: Amend sec. 1012 of Dodd-Frank to make it
clear that the Fed may not delegate to the CFPB its authority to examine insured
depository institutions with assets of $10 billion or less.
Title II
Regulatory Relief for Banks and their Customers
Section 201. Escrows: Amend Dodd-Frank to provide that mortgage loans held in
portfolio by banks under $10 billion in assets are excluded from escrow
requirements. .
Section 202. Annual Privacy Notices: Requires a bank to provide annual privacy
notices to consumers when it either shares consumer information (other than as
provided by an exception) or changes its policies. Annual privacy notices would
otherwise be eliminated.
Section 203. Agriculture Loans: Authorize the Secretary of Agriculture to

reprogram unused monies from other programs into the Business and Industry loan
program. Lower origination and program fees for borrowers of rural, small business
loans under $5 million. and allow guarantee of up to 90% of principal,
Section 204. USDA Loan Program: Remove term limits applicable to borrowers
using USDA's guaranteed farm operating loans. Also. allow family farms organized
as LLCs to access guaranteed farm loan programs.
Section 205. Reimbursement for Mandatory Production of Records: Requires

reimbursement by the Federal government to institutions with assets of $10 billion or
less for the production of records for any law enforcement or investigative purpose,
modeled after the provision in the Right to Financial Privacy Act.
Section 206. Loan Amortization: For purposes of regulatory capital, amend

Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 1828) to temporarily
allow banks with assets of $10 billion or less to amortize over 10 years any mark-to-
market losses on property acquired through foreclosure. or on impaired loans
secured by real estate.(Smitty/Perlmutter language)
Section 207. GSE Preferred Stock: Restore dividend payments on GSE preferred
stock to holders of record as of September 2008.
Section 208. Credit Ratings: Amend Dodd-Frank mandate which removes

references to external credit ratings. Amend sec. 939A to direct bank regulators to
Updated-December 2010
require that ratings-based determinations be confirmed by additional analysis in

circumstances where ratings are likely to present an incomplete picture of the risks
presented to an institution, or where those risks are heightened due to
concentrations in particular asset classes.
Title III
Tax Relief for Bank Depositors, Rural Banks, Municipalities, Banks
Organized as limited Liability Companies, and Young Savers
Section 301. Long Term CDs: Reduces tax rate and defers income on long-term
certificates of deposit (All Savers Account). Defers tax recognition of individual
interest income on long-term CDs (term of 12 months or more) until maturity and
reduces the tax rate to long-term capital gains tax rate.
Section 302. Enhanced Rural Lending: Excludes from taxable income of a bank
or savings association income earned on agricultural real estate loans and mortgage
loans in communities with a population of 2,500 or less. This mirrors exclusion
available to the Farm Credit System.
Section 303, Update Tax-Exempt Bond Limits: Increases from $10 million to $30
million the annual issuance limitation for tax-exempt obligations. The limitation
would be indexed for inflation prospectively.
Section 304. LLCs: Allows bank, bank holding company, savings association or
savings association holding company with assets of under $10 billion to elect to be
treated for tax purposes as a limited liability company in a tax-free transaction.
Section 305. Young Savers Accounts: Permits a Roth IRA account for individuals
under age 26 to encourage early savings.
Title IV
Targeted Tax Relief for Community Banks and Holding Companies
Section 401. Limited Community Bank Credit: Allows banks, bank holding
companies, savings associations and savings association holding companies with up
to $5 billion in assets that are taxed as C corporations to take a 20% credit against
their taxable income up to a cap of $250,000. Shareholders of financial institutions
that are S corporations would be able to exclude 20% of the distributable income
from the financial institution up to an aggregate cap of $1,250,000. Also creates a
50% tax credit for financial institutions with up to $5 billion in assets that are·
operating in distressed communities and/or designated enterprise or empowerment
zones, or qualifying New Market Tax Credit Census tracts not to exceed $500,000.
Financial institutions that are operating in these areas and that are S corporations
would be able to exclude 50% of distributable income not to exceed $2.5 million of
income.
Section 402. Community Bank AMT Relief: Repeals the alternative minimum tax
for banks, bank holding companies, savings associations and savings association
holding companies with assets of $1 0 billion or less.
Section 403. NOL Carry Back: Extend 5 year NOL carry back. Allow community
banks with $15 billion or less in assets to spread out their current losses with a 5
year carry back allowed through 2011.
Title V
Small Business Subchapter S Reforms
Section 501. Shareholder Limit: Increase shareholder limit for S Corporations to

200 from 100.
Section 502. Preferred Stock: Allows the use of preferred stock for S Corporation
banks
Section 503. IRA Shareholders: Allow IRA shareholders to invest in S Corporation

banks.
Title VI
Small Business lending Enhancements
Section 601. Extend SBA Loan Incentives. Increase government guarantees on

SBA loans from 75 percent to 90 percent and waive borrower fees for 2 years from
date of enactment.
Section 602. CFPB/Small Bank Burden: Modify Snowe amendment in Dodd-Frank

that reguires the CFPB to determine the impact of proposed rules on small
businesses. Language should make it clear that community banks under $1 billion in
assets are included within the definition of small businesses.
Section 603. Small Issuer Exclusions: Amend Dodd-Frank to provide exclusions

for small issuers (market capitalization of $250 million or less) from: say-on-pay:
compensation committee independence: and golden parachute provisions.
December 27, 2010
The Honorable Dan-ell Issa

Ranking Member
Dear Congressman Issa,
Thank you for the opportunity to voice the concerns of independent oil and natural gas
producers in regard to the regulatory state. The Independent Petroleum Association of
America (IPAA) represents thousands of small-business oil and natural gas producers,
many of which operate on strict budgets in accordance withtheir respective business
plans. Simply stated, any increases in regulatory costs that talce capital away from
investing in exploration and production will negatively impact job growth in the oil and
natural gas industry.
Oil and natural gas production is a highly technical and complex industry. The correlation
. between job growth and regulatory ceitainty is not always a direct link. However, a stably
priced and ample supply of energy is clearly linked to job growth. Furthermore, a fluid
regulatory state or the implementation of a new draconian rule, can lead to negative
circumstances for small-business companies due to the delicate relationship between their
operational budgets, the cost of regulatory compliance, and allowing for the appropriate
number of employees. Independents that must operate within limited financial parameters
are often those most impacted by regulatory measures.
As the Committee on Oversight and Government Reform begins to examine the areas of
economic impact due to existing and proposed regulations, please remember that the
regulatory state cannot be viewed as stand-alone measures. Rather, as you will see, it is
an aggregate dynamic that factors into the economic health of any industry.
Per your recommendation, IPAA has identified existing and proposed regulations that can
have a negative impact on job growth. They are as follows:
Offshore Permitting
Ongoing delays in the processing of permit and plan applications.
The omission of allowing the use of NEPA Categorical Exclusions will cause major
delays in permitting.
The recently issued "guidance document" by BOEMRE is the latest in a long string
of regulations on offshore producers from the Obama Administration. There has
been no clarity or certainty provided by the Administration on whether there will be
any further regulations implemented.
Onshore Federal Land Permitting
The omission of allowing the use of NEPA Categorical Exclusions will cause major
delays in pelmitting, parallel to concerns of the same issue involving offshore
production.
Resource Management Plans could be reconsidered adding extensive delays.
Endangered Species Act designations can create, or contribute to, more uncertainty
in the permitting process.
These uncertainties have created a bacldog of permits in the intelmountain west that
must be addressed, as capital is flowing out of the region during the delays.
Environmental Protection Agency
EPA has altered permitting under the Safe Dlinking Water Act for hydraulic
fracturing when diesel is used. .
NRDC petitioned EPA to reopen the 1988 Regulatory Determination under RCRA
to seek regulation of drilling fluids and produced water as hazardous waste.
NRDC challenged and won litigation on EPA regulations on stormwater
management during construction.
Implementing new SPCC regulations
Revising the ozone standard
Implementing GHG regulations
Aggregating air emissions to require additional controls
Applying the Toxic Release Inventory to oil and natural gas production
Adding hydrogen sulfide to the list of hazardous air pollutants
Revising/creating Effluent Limitation Guidelines under the Clean Water Act
Listing additional species under the Endangered Species Act
Revising the national ozone standard
EPA enforcement initiative targeting oil and natural gas production
Financial Reform
The CFTC will be developing regulations on commodity markets that will impact
the availability and cost of hedging.
IPAA would like to recommend a follow-up meeting with you, or the appropriate staff, to
further discuss each of these regulations in detail. Please contact Joel Noyes at (202)
857-4722 to arrange a meeting that fits your schedule.
Thank you again for the opportunity to represent the concerns of America's independent
oil and natural gas producers on this critical topic.
Sincerely,
Z;<Z::~~
Barry Russell
President & CEO
cc: The Honorable Edolphus Towns, Chairman

International Dairy Foods Association
Milk Industry Foundation
National Cheese Institute
International Ice Cream Association
January 10, 20 II
Chairman Darrell Issa

House Committee on Oversight and Government R ef0l111
Washington, DC 20515-6143
Dear Chairman Issa,
Thank you for your letter asking for our comments on regulations that negatively impact
the economy and jobs.
The International Dairy Foods Association (IDFA), Washington, DC, represents the
nation's dairy manufacturing and madceting industries and their suppliers, with a
membership of550 companies representing a $IIO-billion a year industry. IDFA is
composed ofthree constituent organizations: the Milk Industry Foundation (MIF), the
National Cheese Institute (NCI) and the International Ice Cream Association (IlCA).
IDFA's 220 dairy processing members run more than 600 plant operations, and range
from large multi-national organizations to single-plant companies. Together they
represent more than 85% of the milk, cultured products, cheese and frozen desserts
produced and marketed in the United States. IDFA can be found online at www.idfa.org.
The U.S. dairy industry has experienced significant growth over the past few decades and
recent studies have shown that we are uniquely poised to take advantage of growing
world markets for dairy. If we do, we can expect milk production to continue to increase
as well as the associated jobs that come fTom additional dairy manufacturing plants
across our country.
Milk is the most highly regulated of all agricultural products in the United States. The
prices that are paid to dairy farmers are subject to a mind-bogglingly complex and
outdated federal regulatory system. In addition, dairy products are subject to federally
mandated "standards of identity" that are difficult and time-consuming to update to
respond to new manufacturing practices or changing consumer tastes.
While IDFA supports regulations that safeguard the food supply, and the dairy industry
has an excellent food safety record, this web of regulations is holding US back and
keeping this industry from reaching its full potential as an economic engine for our
country.
1250 HSt., NW, Sulto 900, Washington, DC 20005

phona: 202-737-4332 fax: 202-331-7820 www.ldfa.org
Chairman Darrell Issa
January 10, 2011
Page Two
The two broad categories of regulations that could benefit greatly from streamlining and
review are: 1) USDA price regulations under the Federal Milk Marketing Order (FMMO)
system, and 2) FDA food standards of identity for milk and other dairy products.
Simplify USDA Federal Milk Marketing Order Pricing
Milk is the only agricultural cominodity for which the government sets minimum prices
that buyers pay to fanners. The goverrunent regulated prices change every month and
ValY according to geographic location of daily plants, and the types of dairy products that
are made fi'om the mille. This highly complex and rigid pricing system has stymied
growth and innovation in the dairy industry as govemment regulations, not markets,
impact manufacturing decisions and capital investment in the industry. The system was
not designed, and has never functioned to give fanners a safety net.
Today, there is broad agreement between daily manufacturers and daily fanner
cooperatives that the FMMO regulations should be simplified; however, impediments to
change remain in place. Federal requirements need to be updated to get USDA on the
right track. For instance, the Office of Management and Budget is routinely prohibited in
annual appropriations bills from reviewing proposed FMMOregulations to conduct cost
benefit analyses and other standard regulatory review requirements. Congressional
oversight and support is needed to ensme that the FMMO system is reformed during the
ll2th Congress. .
Modernize FDA Dairy Standards of Identity and Streamline Rulemaking
Growth in the dairy industry is also hindered by a disproportionately high number of

FDA-mandated food standards, and the time intensive process required to update them.
In order to be competitive in the food industry, dairy products standards must evolve
quicldy to keep pace with constantly changing consumer preferences, new technology,
and global trade in daily. However, this necessary innovation is effectively baiTed by om
outdated standards of identity system.
FDA needs to modernize the food standards process. Food standards regulations date
back to the 1950's and 1960's and preceded the nutrition and ingredient labeling that is
now required. The key element of a food standard should be the characterizing
ingredient of the product. Our industry should be allowed to make changes to any non-
characterizing ingredients without requiring a formal change in FDA regulations. Any
substitute non-characterizing ingredient would still be required to meet existing safety
requirements, and be declared on the product's label, just as they would with the vast
array of non-standardized foods. This would greatly facilitate innovation within the dairy
industry and save FDA considerable resources, witllOut any negative impact on
Chairman Danell Issa
January 10, 2011
Page Tlu'ee
consumers. This approach is now pending before FDA in the form of a Citizen Petition
filed by the Grocery Manufacturers Association in 2006, and joined by IDFA and a
number of other food-manufacturing trade associations.
A current example of how a standard of identity is holding back innovation, consider the
use of non-nutritive sweeteners in milk. Flavored milks that are sweetened by sucrose or .
fructose can be labeled as milk. Many dairy companies now produce a reduced-calorie,
flavored milk using zero or low calorie sweeteners that fully meet FDA's safety standards
and ingredient label requirements. However, because of the milk standard of identity, the
lower calorie flavored milk cannot be labeled as "milk".
Although other food sectors can react to the marketplace quickly, it is not uncommon for
the dairy industly to wait years for a food standard to be updated or for the FDA to
resolve industry issues. In fact, our joint petition with the National Milk Producers
Federation to allow the use of ultra-filtered milk in standardized cheese production has
been pending for over 10 years. This is in part due to the FDA's inability to timely
respond to petitions for change. But, these delays are also due in part to a Congressional
mandate that standards of identity for dairy products be subject to formal rulemalcing. No
other food standard of identity is subj ect to a similar requirement and dairy products
should not be subject to the more formal procedure.
Thank you again for inviting our input. I would be happy to discuss with you and your
stafffurther information on any of these topics.
Sincerely,
Constance E. Tipton
President and CEO
CET/hs
ifilMHI
Mallufactured Housing Illstitute
JanualY II, 2011

Chainnall
Dear Chainnan Issa:
In response to your December 10,2010 request for infornlation, the Manufactured Housing Institute (MHI), a
national trade association representing all segments of the factory-built housing industry including
manufacturers, financial service companies, community owners and home sales centers, appreciates the
opportunity to identify existing and proposed regulations that need to be addressed to help move our industry
forward.
The manufactured housing industry plays a substantial role in the housing market. Over the past two decades,
manufactured housing has accounted for more thall one in every five new singlefamily homes sold. There are
nine million households (about 18 million Americans) living in manufactured homes.
Every manufactured home is constrncted in the United States, and over one American job is created with every
home built. As of November 2010, there were 132 manufacturing facilities operated by 51 corporations, with
over 50,000 manufactured home communities and hundreds of retail home sales centers.
As an industry which is uniquely American, the manufactured housing industry is regulated at the federal level
through the Office of Mffimfactured Housing at the U.S. Deparhnent of Rousing and Urban Development
(HUD).
The manufactured housing industry rccognizes and supports the need for appropriate ffild fair regulation to
both protect consumers and benefit industry. However, the regulatory environment can be improved for
manufactured housing alld our customers by addressing four particular issues.
IMPLEMENTATION OF THE GSE "DUTY TO SERVE"
Despite our significant housing presence, Fannie Mae and Freddie Mac have longstanding policies which have
constrained growth in manufactured housing and adversely impacted customers. While the GSEs purchase a
very small amount of confonning real property manufactured housing loans, they offer no funding for personal
property loans which comprise the bulk of lending activity in the manufactured housing market.
As a result, Fannie Mae and Freddie Mac reject a disproportionate number of the manufactured home
mortgages submitted, particularly loans for low-income borrowers. Manufactured home loans currently
account for lcss than onc half of one percent of the total GSE portfolio. Manufactured housing clearly did not
contribute to the current situation of tl,e GSEs.
2111 Wilson Blvd. Suite 100 A1'lington, VA 22201-3062 Tel: 703.558.0400 Fax: 703.558.0401
http://www.manufactul'edhousing.org lnfo@mfghome.ol'g
Manufactured Housing Institute Page 2
In the Housing and Economic Recovery Act of 2008 (HERA), Congress indicated the GSEs have a "duty to
serve" (DTS) the manufactured housing marketplace, with a specific focus to support "personal property
loans." Congress believes it is vitally important that the GSEs playa major role in ensuring the availability of
affordable financing for low-to-middle income borrowers in a responsible manner.
h1 June 20 I0 the Federal Housing Finance Agency (FHFA) issued a proposed rule ignoring Congressional
guidance by specifically disallowing the GSEs to support manufactured housing personal property loans. The
willful resistance by FHFA regarding the GSE's duty to serve manufactured housing is very troublesome,
especially as they support the rest of the housing market during this difficult time, but ignore the millions of
homeowners living in manufactured homes. The final rule must be revised to provide our customers access to
capital and not place the manufactured housing industry at an lmfair competitive disadvantage.
HUD OFFICE OF MANUFACTURED HOUSING
For thirty five years the manufactured housing industry has met federal building codes and standards regulated
by HOO as required by the Federal Manufactured Housing Construction and Safety Standards Act of 1974. In
2000, the Manufactured Housing hnprovement Act made important revisions to the law to improve the
affordability and availability of manufactured housing.
A strong and healthy manufactured housing program must always be a priority within HUD. In the 2000 Act,
Congress stipulated the appointment of a non-career administrator to oversee the Office of Manufactured
Housing, however this appointment has not been filled since 2004.
The appointulent of a non-career administrator is required by law, and we urge for this position to be filled
immediately by HUD. MHI also believes increased Congressional oversight is beneficial to ensure that
manufactured housing and the customers we serve and the individuals we employ are a priority.
FINANCIAL REFORM AND THE SAFE ACT
ill 2008, the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) was passed by Congress.
Last year, the Dodd-Frank Wall Street Refonn and Consumer Protection Act was enacted. The laws were
intended to put into place a new regulatory framework for consumer finance and mortgage lending activity in
the nation.
While the industry supports robust and transparent laws and regulations to protect consumers, the significant
revisions to mortgage finance and predatory lending laws outlined in Dodd-Frank and the unfair application by
regulators of the SAFE Act to our industry are essentially job-killers.
Congress did not intend to include individuals under tl,e SAFE Act who perform administrative and clerical
tasks as mortgage loan originators as long as they do not offer or negotiate loan terms for compensation or
gain. Congressional intent to exclude certain activities perfOimed by individuals is clear. However, regulators,
particularly at the state level, have gone out of tl1eir way to broaden the scope of regulated activity. This has
greatly increased the cost of homes for consumers, prevented access to affordable housing for many, and has
even forced businesses in the manufactured housing industry to shut down.
The Dodd-Frank Act amends a number of consumer finance laws and adds new requirements on residential
mortgages, including limitations on origination activities, high-cost mortgages and appraisals. While there are
many sensible elements of the reform, there are a number of areas which add increased regulatory costs to
businesses and consumers in the manufactured housing area, yet are not even applicable to our business
activities.
Manufactured Housing Institute Page 3
MHI is seeking amendments to Dodd-Frank which would maintain a rigorous regulatory framework but one
that is rational and appropriate for our industry. Given the complexity of the changes, we also urge strong
Congressional oversight to ensure the law is implemented fairly and properly.
INDUSTRY REGULATION BY Two SEPARATE FEDERAL AGENCIES
The Energy Independence Security Act of 2007 (EISA) directs the U.S. Department of Energy (DOE) to create
new energy standards for manufactured housing. From a regulatory standpoint, this makes no sense. Since
1976 the manufactured housing industry has been regulated by one federal agency at HUD which oversees all
aspects of home construction and safety standards, including energy. The industry is now forced to deal with
government expansion of two federal agencies now regulating our construction. TIle need to streamline the
regulatory enforcement process under the auspices of a single, cognizant agency, HUD, is imperative. A single
regulator overseeing a single national preemptive code plays a major role in allowing our industry build homes
economically, a comerstone in our efforts to keep housing affordable.
The manufactured housing industry plays an important role in creating jobs, and providing high quality
affordable housing to millions of Americans. Our industry has experienced a protracted decline over the past
decade, due to difficult economic conditions but also because of adverse regulatory policies particularly in the
areas of consumer finance. We believe addressing these four issues will greatly assist the industry in getting
back to building homes, creating jobs, and serving lilore customers.
Feel free to contact me tlong@mfghome.orgorat (703) 558-0678 if you or your staff has any questions.
Sincerely,
Thayer Long
Executive Vice President
Penthouse Level 124 South West Street
Suntec Tower 3 Suite 203
8 Tem asek Blvd Alexandria, VA 22314
Singapore 038988 Tel: 703.248.3636
Tel: +6568663238 Methanol Institute
January 18, 2011
Chainnan Darrell Issa

House COlmnittee on Oversight and Government Refonn
B350A RaybUlTI House Office Building
Dear Chailman Issa:
It is very refreshing to see you, as the new Chainnan of the House Committee on Oversight and
Govemment Refonn, reaching out to industry to examine the role of regulations and their impact on the
economy and jobs. As the trade association for the global methanol industry, the Methanol Institute would
like to take this opportunity to give you 0UI' thoughts on this critical issue. Specifically, we would like to
bring to yOUI' attention three specific concems:
1. EPA Chemical Health Assessments Under the Integrated Risk Information System (IRIS)
Background: When it comes to the regulation of chemicals by the Environmental Protection Agency, as
well as other federal, state and intemational agencies, the EPA's chemical health effects database under the
Integrated Risk Information System is the basis for detennining a chemical's risk in the fonnulation of any
regulations. In other words, an IRIS toxicological review fmding that a chemical poses risks to the public
from ingestion, inhalation or as a potential carcinogen can lead to quite dramatic regulations to restrict a
chemical's use in global commerce.
Concem: On Janmuy 12 tl" 2009, the EPA released its draft toxicological review for methanol which
includes a proposed oral reference concentration for methanol - a naturally occurring element - so
stringent that drinking a 6-ounce glass of California orange juice each day could exceed the Agency's
proposed threshold, and couM trigger regulatory actions such as product warning labels. The EPA also
proposed to classify methanol as a "likely hUlUan carcinogen" based largely on a single study by the Italian
Rarnazzini Foundation. On June 15'h, the EPA placed the methanol assessment - and three others - on hold
after a report from the National Toxicology Program questioned the credibility of the Ramazzini methanol
study. Through a FOIA request, the Methanol Institute obtained the full records of the NTP review, fmding
that the U.S. scientists disagreed with the Rmnazzini pathologists on most cancers, and that the NTP analysis
does not support a conclusion of cancers from methanol exposure. It has now been seven months since the
EPA put the methanol IRIS assessment on-hold, and no decision has been announced regarding a resolution
of this issue.
2. EPA Requiring Industry to Conduct Endocrine Disruptor Screening for Chemicals
Background: On November 17, 2009, the EPA issued a notice providing a list of 134 chemicals - including
methanol - for which the Agency expects to require Endocrine Disruptor Screening. This testing is being
required as a result of a Congressional mandate to detennine whether exposure to certain pesticides and
1
other chemicals adversely effects or "disrupts" the endocrine organs which produce hormones regulating
growth, metabolism and reproduction.
Concern: It is estimated that this requirement will cost $500,000-$1,000,000 per chemical to conduct
a series of11 tests that have yet to be fully verified by the scientific community. In fact, the first proscribed
round of endocrine dismptor screening involving 67 pesticides has been found to be so difficult that it is
unlikely industry will be able to meet the EPA's tight two-year deadline. At tillS point, it is unclear whetller
there are even enough laboratories capable of performing the rigidly designed tests to get this work done, let
alone whether there are any real benefits to protecting public health from this testing protocol.
3. TSCA Reauthorization and REACH-Lite
Background: Reauthorization of the Toxic Substances Control Act is likely to be a significant part of the
legislative agenda for the I 12th Congress. There has been a good deal of discussion about morphing the
U.S. chemical regulations to mirror the European Union's REA eH program. That may be a mistake. In
fact, the U.S. EPA has already signed a cooperative agreement with the European Chenllcals Agency
(ECHA) to co-operate on technical matters regarding chemical risk assessment.
Concern: The REACH program is still very much a "work in progress," and it remains to be seen if the
huge bureaucracy being established by the EU can effectively manage the program. On January 3rd , ECHA
received more than three million industry notices to register nearly 25,000 chemicals. The cost to induStly
to respond to the REACH mandate has been staggering, in the billions of Euros. To manage this vast
amount of data, ECHA plans to expands its staff, with a target of 500 employees by the end of this year.
Further, the program allows these govermnent bureaucrats to restrict or even ban the use of chemicals
without any concem for the impact on the European economy.
Again, we applaud your efforts to seek input from industry on the impact of government regulations.
Product stewardship and the safe handling of chenJicals to protect our employees, the public, and the
environment has been always Job #1 for our industly. The development of chemical regulations should be
a cooperative effort of industry and government around common goals and using the best available
science. Too much is at stalce for our economy and U.S. jobs for this relationship to be based on antagonism
and distrust. Your efforts are an excellent begimJing.
Sincerely,
Gregory Dolan
Executive Director
Americas/Europe
2
N~FO
National Alliance of Forest Owners
Investing in the Future ofAmerica's Forests
January 10, 2011

Chairman
Dear Chairman Issa,
°
The National Alliance of Forest Owners (NAFO) is pleased to submit a response to your
December 29, 201 request for assistance to identify existing and proposed regulations
that have a negative impact on the economy and jobs.
NAFO is an organization of private forest owners committed to promoting Federal

policies that advance the economic and environmental benefits of privately owned
forests at the national level. NAFO membership encompasses 79 million acres in 47
states, including 4 million acres in California. Private forests provide 2.5 million jobs and
$102 billion towards the national GOP including 190,883 jobs and $12.48 billion towards
the GOP in the state California.
The Environmental Protection Agency's (EPA) treatment of biomass emissions under

the agency's Prevention of Significant Deterioration of Title V Greenhouse Gas Tailoring
Rule (the Tailoring Rule) and its treatment of silvicultural activities, such as pesticide
applications and forest roads, as point sources of water pollution under the Clean Water
Act have potentially significant negative impacts on jobs, the economy, and the
environment. Attached is a summary of how these regulations impact our industry and
the jobs we provide with responses to the four questions you have posed.
Thank you for seeking our input. We look forward to working with you in your new role
as Chairman and are happy to visit with you to provide additional information regarding
EPA's actions.
Sincerely,
Dave Tenny
cc: The Honorable Edolphus Towns, Ranking Member
122 C Street NW, Suite 630. Washington. DC 20001· (202) 747-0759· www.nafoalliance.org
Impacts of EPA Regulatory Actions on Forest Owners
How have EPA actions impacted our industry?

• On January 2,2011, the EPA began regulating greenhouse gas emissions under
the Clean Air Act through the "Tailoring Rule." The final Tailoring Rule, without
appropriate notice and opportunity to comment, made a sudden change in policy
by treating carbon emissions from biomass the same as those of fossil fuels and
applying identical permitting requirements to both. The draft rule was consistent
with government-wide policy, international conventions and well-established
science recognizing that forest biomass recycles carbon from the atmosphere
through tree growth and does not increase overall carbon in the atmosphere.
EPA has suggested it will make a decision on whether to amend the rule by May
of 2011, but has the capability to make that decision much earlier.
• Since 1976, EPA regulations (commonly known as the "silviculture rule") have
defined most forest management activities, including "pest control" and "forest
roads," as non-point sources of water pollution under the Clean Water Act
(CWA). Under the CWA, only point sources must obtain permits (otherwise
known as NPDES permits) for discharges of pollutants into waters of the United
States; non-point sources are subject to state-developed best management
practices (BMPs). Studies indicate that implementation of BMPs in forest
management averages nearly 90% nationwide even though they are not
mandatory in many states. EPA is now considering two actions that undercut
this long-standing rule.
First, pursuant to a court order, EPA issued in June of 2010 a draft general
NPDES permit for application of pesticides over, into, or "near" waters of the
United States. States are now developing state versions. This permit would
provide coverage for some pesticide applications but not all. EPA suggests that
the silviculture rule no longer applies to pest control, even though the rule has not
been amended. The permit duplicates protections already adopted by EPA
under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), but adds
additional paperwork and reporting requirements. EPA registers pesticides and
herbicides by approving application criteria in FIFRA approved labels. Because
pesticides undergo lengthy testing under FIFRA, including tests to ensure water
quality and aquatic species preservation, and because they are useful products,
EPA had considered NPDES permits to be unnecessary and duplicative prior to
the court's decision.
Second, the U.S. Court of Appeals for the Ninth Circuit issued a decision in
August 2010 finding that the stormwater management systems on forest roads
(e.g., ditches, culverts, etc.) are point sources that EPA lacked authority to define
as non-point sources. The court further ruled that forest roads are included
within the industrial activity category subject to mandatory NPDES permits under
Phase I of the stormwater program. The defendants (the Oregon state forester
and several companies that use state roads to haul logs), but not EPA, have
2
sought rehearing from the court, consideration of which will extend into next year.
EPA, which filed an amicus brief supporting its rules in the original appeal, has
been silent during rehearing. Further, EPA has indicated that it will shortly issue
guidance allowing its regional offices outside the Ninth Circuit to provide
coverage if anyone asks for a permit for forest roads, thus suggesting that the
agency will abandon its rules and follow the decision if it becomes final.
• EPA has begun the development of large impaired watershed total maximum
daily loads (TMDLs), beginning with the Chesapeake Bay. Concerns have been
raised that the agency is forcing mandatory controls on non-point sources
through the TMDL mechanism. NAFO is concerned because under the Clean
Water Act, each state has the prerogative of determining how best to manage
non-point sources. Most states accomplish this through voluntary best
management practices (BMP) which, in the case of forest management, studies
show are both effective and widely followed.
• Finally, EPA's risk assessment and registration process for pesticides and
herbicides under FIFRA has long acknowledged that a small level of spray drift
is unavoidable and, when used according to the drift reduction measures on the
product's label, does not pose an "unreasonable adverse effect" to humans or
the environment. On November4, 2009, EPA proposed changing its spray drift
policy from reliance on the FIFRA standard of "no unreasonable adverse effect"
to a policy based on the precautionary principle that would prohibit applications if
drift "could" cause an adverse effect. This would require substantial buffers
around application areas, thus limiting the effectiveness of the application. EPA
has not yet issued a final policy, but has not dropped its consideration of the
change.
Are these actions mandated by statute, pursuant to an implementing regulation;

required by a court decision or an independent action by the agency?
• EPA' action on the Tailoring Rule was an independent action by the Agency that
is not mandated by statute, pursuant to an implementing regulation or required
by a court decision. The draft rule recognized that forest biomass recycles
carbon from the atmosphere through tree growth and does not increase overall
carbon in the atmosphere. The final rule treats carbon emissions from biomass
the same as those from fossil fuels and subjects both to identical permitting .
requirements.
• EPA's draft general NPDES permit for pesticide application is the agency's
response to a decision by the U.S. Court of Appeals for the Sixth Circuit that
application of pesticides into, over or near water as authorized by a label
approved by EPA under FIFRA is a discharge of a pollutant and requires an
NPDES permit under the Clean Water Act. The particulars of the permit,
including how it treats long-standing policies, like the silviculture rule, are choices
by the agency.
3
• EPA's response to the decision on forest roads is entirely an independent action
by the agency. While the court considers whether to rehear its initial decision,
the ruling has no force, and even if put in effect, only applies directly within the
Ninth Circuit.
• The development of TMDLs for impaired waters is a statutory requirement;

however, EPA's effort to require mandatory regulation of non-point sources is an
agency initiative.
• EPA's proposed spray drift policy revision is an independent action of the

agency.
What are the significant deadlines/dates of EPA action (i.e. comment period
closes, implementation begins)?
• The Tailoring Rule was implemented on January 2, 2011. EPA has suggested it
will make a decision on whether to amend the rule with respect to biomass, by
May 2011. It has the capability to make that decision much earlier.
• The court ordered EPA to have a permit program for pesticide applications into,
over, or near waters of the United States by April 2011. EPA itself administers
the program in only six states. The other 44 states must adopt their own
program, and many have begun this effort with their own processes. The states
are also subject to the April 11 deadline.
• On the forest roads issue, there are no deadlines for rehearing, and there is
certainly no deadline for EPA action.
• The Chesapeake Bay TMDL has been issued with provisions which mainly affect
agriculture. EPA will now turn to other watersheds such as the Mississippi River.
• On the proposed spray drift policy revision, the comment period is closed and the
matter is under agency consideration ..
Please describe how EPA's action or proposed action will impact your industry.
If applicable, please include the cost to the industry and the impact on jobs and
the economy.
• Anyone of these aforementioned actions will increase the cost of forestry; and all
five together would have a substantial impact. The precise costs are dependant
on the final content of the requirement, but all will demand paperwork and
monitoring at a scale significantly greater than current practice, and will render
forest management vulnerable to litigation.
4
• For example, the Tailoring Rule, by reversing longstanding policies and suddenly
treating biomass emissions the same as fossil fuel emissions, requires
unnecessary and costly permits for renewable energy producers and could
subject biomass energy and forest management producing biomass to any cap
on carbon emissions the government may impose. This unprecedented
treatment of biomass has created marketplace uncertainty that is stalling
investment in biomass energy projects and jeopardizing associated green jobs,
because it removes a key advantage of biomass over fossil fuels.
• A recent study, conducted by Forisk Consulting, a nationally respected market

analysis firm, found that the regulatory uncertainty created by the Tailoring Rule
has negatively impacted at least 23 near-term projects representing 1,519
megawatts of potential electrical capacity. The study's authors also noted that
there are developers of a number of additional projects already affected by the
rule who have chosen to remain anonymous and have not publically disclosed
the EPA's action as the reason for their projects stalling
• If left unchanged, the study also found the Tailoring Rule will jeopardize over 130
renewable energy projects, between 11,000 and 26,000 green jobs and
ultimately $18 billion in capital investment across the country. The risk of
reduced capacity in renewable electricity projects could also prevent as many as
30 states from meeting national renewable energy targets.
• The same study, by Forisk Consulting, also found that if left unchanged, the
Tailoring Rule will remove 53.4 million tons of wood biomass demand from the
market every year. Experts predict that as the biomass energy market matures,
prices would likely normalize to around $8-$1 Olton, which would translate to
around $500 million annually in lost market opportunities for forest owners across
the country as a result of this EPA rule.
Has the industry proposed alternatives to EPA's proposals regarding this action?
If 50, please briefly explain:
• We have submitted a petition to EPA asking for reconsideration of the Agency's

treatment of biomass in the final Tailoring Rule and restore the status quo while
the agency studies the issue further.
• On NPDES permits, we have encouraged EPA to stand by its existing regulation

defining forest management as a non-point source.
• With respect to TMDLs, we have emphasized to EPA the statutory difference in

the Clean Water Act between federal regulation of point sources and state
management of non-point sources.
5
• On the proposed spray drift revision, we have encouraged EPA to comply with
risk balancing principles of FIFRA.
What action or actions do you think Congress should take regarding this issue?
• In the near term, Congress should require EPA to propose a supplement to the
Tailoring Rule to address the treatment of biomass under the rule as soon as
possible. The EPA should also the stay the treatment of biomass in the Tailoring
Rule until the supplemental rulemaking is completed. In the long term, Congress
should require the Agency to fully recognize the biomass carbon cycle.
,
• Congress should consider legislative ratification of the EPA regulation defining
forest management activities as "non-point sources.'"
• Congress should monitor the development of large watershed TMDLs to ensure

compliance with the Clean Water Act. Congress should avoid new legislation
that would authorize mandatory regulation of non-point sources.
• Congress should inquire why EPA is ignoring the law regarding the appropriate
standard for risk assessment.
6
NATIONAL ASSOCIATION OF
NACDS CHAIN DRUG STORES
Steven C. Anderson, 10M, CAE

President & Chief Exccurive Officer
January 14, 2011
The Honorable Dan'ell1ssa

Chairman, Committee on Oversight and Govemment Reform
United States House of Reptesentatives
Dear Chairman Issa:
Thank you for the opportunity to provide you with examples of existing and proposed
regulations that negatively impact the economy and job growth in the chain drug store
industry. As a critical dliver of the economy, these issues are of the utmost importance to the
NACDS membership.
NACDS represents traditional drug stores, supermarkets, and mass merchants with
pharmacies - from regional chains with four stores to national companies. Chains operate
39,000 pharmacies and employ more than 2.7 million employees, including 118,000 full-time
413 North I.e" Smet pharmacists. They fill nem'ly 2.6 billion prescriptions annually, which is more than 72
Alexandria. Virginia
percent of annual prescriptions in the United States. The total economic impact of all retail
stores with pharmacies transcends their $830 billion in annual sales. EvelY $1 spent in these
22314 stores creates a ripple effect of $1.96 in other industries, for a total economic impact of $1.57
trillion, equal to 11 percent of GDP.
Health Information Technology for Economic and Clinical Health CHITECH) Act
The Health Information Technology for Economic and Clinical Health (HlTECH) Act, which
passed into law in 2009, included among its provisions a comprehensive revision of the
privacy and security regulations adopted by HHS under the Health Insurance Portability and
Accountability Act (HIPAA). These revisions include new requirements for healthcare
providers to report breaches of sensitive patient information, provisions for patients to
exercise more control over their information, and an expansion of a requirement for
healthcare providers to maintain a detailed accounting of all disclosures of patient
information, to include daily, routine disclosures. This last proVision is known as the
"accounting of disclosures" requirement.
Hl-IS regulations currently require healthcm'e providers to maintain a detailed accounting of

only non-routine disclosures, willi the understanding that patients would expect their
sensitive health information to be routinely disclosed, or shared, for the purposes of
healthcare treatment, payment, and operations. Patients expect their information to be shared
for these purposes, and these interactions occur millions of times per day, by pharmacies
alone-not including other healthcare providers, to deliver timely, safe, and efficient care.
Maintaining detailed records would require an overwhelming amount of information to be
stored.
(703) 549-3001
The HITECH Act expands the accounting of disclosures requirement to include all
Fax (703) 836-4869 disclosures, even daily, routine disclosures. HHS is currently drafting regulations to
www.nucds.org
Issa Letter
Page 2 of3
implement this requirement. If this expansion of the accounting requirement were to be

imposed on phannacies, it would cause chain pharmacies to have to completely replace their
existing information technology systems nationwide. This would have a significant negative
impact on many pharmacies that are currently struggling. In comment letters to HHS and in
discussions with the agency, NACDS has urged that this expansion of the accounting of
disclosures provision not apply to information technology systems that are not eligible for
federal funding under the HITECH Act, as pharmacy systems are not.
DMEPOS Accreditation
The Medicare Modemization Act of 2003 (MMA) added requirements for suppliers
(including state-licensed retail pharmacies) of Medicare Part B durable medical equipment
and supplies (DMEPOS) to comply with accreditation quality standards to supply and bill for
these items and services. Phmmacies are the most accessible provider in the community for
patients to receive tllese items and services such as diabetic testing supplies, canes, crutches
and other items. The process for pharmacies and other suppliers to become accredited by the
CMS accreditation organizations requires considerable time, resources, alld costs. NACDS
actively sought an exemption from accreditation for retail phmmacies in view of the state-
licensure requirements - both phmmacies and pharmacists must be licensed by the state to
provide pharmacy services including medical equipment mld supplies.
Section 3109 of the recently enacted healthcare reform law, the "Affordable Care Acf'
("ACA") did establish a conditional set of criteria that would allow pharmacies that have
been Medicm'e suppliers for 5 yem's or more and sell less that 5% DMEPOS to have the
conditional exemption. Although NACDS is supportive of the conditional exemption as it
provided some relief for phmmacies, we recognize that the negative impact on certain
pharmacies remains. A significant number must still be accredited, e.g. new phmmacies and
phmmacies with 5 years or less enrollment as a DMEPOS supplier and those that sell as little
as 6% DMEPOS. As such these pharmacies face the economic choice of the costs of
accreditation or foregoing providing DMEPOS to their patients.
Medicare Provider Enrollment, Chain and Ownership system (PECOS)

In 2009, the Centers for Medicme and Medicaid (CMS) announced tlle first phase of the
requirement for the provider that orders or refers Medicare Part B items for a patient to have
a current enrollment record in the Provider Enrollment, Chain and Ownership System
(PECOS). If the provider did not have all enrollment record, the pharmacy that supplied the
medical equipment or supplies to the patient would receive a message indicating the provider
was not enrolled.
The unfortunate consequence for pharmacies is that they have no control over whether a
provider is enrolled in PECOS and no ability to require them to be enrolled. As a result
pharmacies who want to assure that their patients receive their ordered medical equipment
and supplies face the difficult choice of denying patients their needed healthcare items or
providing them and being at risk for no payment.
Issa Letter
Page 3 of3
We are appreciative of recent actions by CMS to address the issue of a number of providers
not being enrolled in PECOS and to not implement the second phase of the PECOS
enrollment requirement. Phase two would have automatically rejected and denied payment to
pharmacies for Part B claims. CMS had planned to start automatically rejecting payment of
the supplier's Part B claims beginning January 3, 2011 if the provider did not have a cunent
PECOS record. ACA contained a provision to implement this requirement on July I, 2010
. and CMS regulations set the requirement date of July 6, 2010. However, CMS has indicated
that they will not implement phase two until a later time yet to be detennined.
DMEPOS Competitive Bidding

On JmlUary I, 2011, CMS implemented a Competitive Bidding Program (CBP) for Durable
Medical Equipment and Supplies, including diabetes testing supplies (DTS) purchased
through mail order. This initial round of the CBP is limited to 9 competitive bidding areas
(CBAs) around the country and is planned to eventually become a nationwide progrmn. As
the most readily accessible health care providers, community phmmacies and pharmacists are
uniquely positioned to assist Medicare beneficiaries with their DTS needs, their questions,
and to assist them with the.proper use of these items and supplies. CMS has thus far
excluded retail pharmacies from Round I and future rounds of the CBP.
NACDS has urged that DTS obtained at retail community pharmacies should continue to be
excluded from future rounds of the CBP as diabetic patients rely heavily on their local
phmmacies for their prescription medications, including insulin. Limiting access to DTS at
community pharmacies would fi'agment care, thereby increasing patient confusion and
disrupting therapy, all of which cml increase overall program costs. In addition to furnishing
supplies, one-on-one patient consultations provided by local pharmacists m'e often the first
opportunity to identify other chronic illnesses and changes in patients' conditions, and these
consultations often result in early detection, referral, and treatment. Continued pm'ticipation
of community retail pharmacies in serving Medicare patients with diabetic supplies and
medication should therefore be a priority of the Medicare program.
Thank you again for the opportunity to provide you with this information. We look forward
to partnering with you in the 112'h Congress on issues impacting chain pharmacy.
Sincerely,
Steve Anderson, 10M, CAE

President and CEO
National Association of Chain Drug Stores
NATIONAL ASSOCIATION OF
Manufacturers
Jay Timmons
Executive Vice President
January i, 2011

Chairman
Committee on Oversight & Government Reform
Dear Chairman Issa:
On behalf of the National Association of Manufacturers (NAM), the largest manufacturing

association in the United States, thank you for the opportunity to identify proposed or existing
regulations that are negatively impacting jobs, the economy and our economic competitiveness.
This list is not exhaustive but represents high priority regulations that will have a significant
impact on our ability to compete globally and create jobs. We look forward to a continuing
dialogue on the impact of regulation on manufacturing.
In your letter, you cite the statistics from the Small Business Administration's (SBA)
Office of Advocacy analyzing the impact of regulatory costs on small firms. The study
represents the best research available to identify the disproportionate burden placed on small
business by reguiation and the even more disproportionate burden placed on small
manufacturers. Manufacturers bear the heaviest burden from environmental regulation, while
facing similar or more stringent regulations in workplace safety, health,transportation, financial,
trade, tax administration, homeland security and export controls. A study by the Manufacturing
Institute and MAPI indicates that structural costs imposed on U.S. manufacturers including
regulation create a 17.6% cost disadvantage when compared with nine major industrialized
countries. For these reasons the NAM developed a strategy to enhance American
manufacturing.
The NAM published its "Manufacturing Strategy for Jobs and a Competitive America" in
June 2010. In that Strategy, we identified three overarching objectives: 1) to be the best country
in the world to headquarter a company; 2) to be the best country in the world to do the bulk of a
.company's research and development; and 3) to be a great place to manufacture goods and
export products. Comprehensive action is needed to counter the impact of unnecessarily costly
regulation to achieve these objectives. We look forward to partnering with your committee,
Congress and the Executive Branch to reform the regulatory policies outlined below, additional
existing regulations and the regulatory process to produce a more thoughtful regulatory
environment that encourages rather than discourages job creation in the United States.
While working on a larger reform agenda, immediate action and attention is needed on
the following areas of regulatory policy this Administration is in the midst of proposing or
implementing. If they are not substantially changed from their present form, they could cost
millions of jobs and weaken an economy in a still fragile recovery.
Leading Innovation. Creating Opportlinity. Pursuing Progress.

1331 Pennsylvania Ave, NW, Suit~ 600, Washington, DC 20004 p 202·637·3043 F 202·637·3182 www.nam.org
The Honorable Darrell lssa
January 7, 2011
Page 2
EPA Regulation of Greenhouse Gas Emissions
On January 2, 2011, the EPA began regulating greenhouse gas (GHG) emissions from
stationary sources under the Clean Air Act. While only the largest facilities will be regulated at
first, this action sets the stage for future regulation of much smaller sources. Manufacturers are
also concerned that states are unprepared for the new permitting requirements, which will cause
significant delays. This permitting gridlock will discourage manufacturers from building new
facilities or expanding their current facilities, hurting competitiveness and discouraging job
creation. Furthermore, additional facilities - including hospitals, agricultural establishments and
even the smallest businesses - will be phased in to the onerous permitting requirements in the
near future.
EPA Boiler MACT
The Environmental Protection Agency (EPA) has proposed a rule that would establish
more stringent emissions standards on industrial and commercial boilers and process heaters
(i.e. Boiler MACT). This broad-reaching proposal could cost manufacturers over $20 billion in
compliance costs and place hundreds of thousands of jobs in jeopardy. Furthermore, the NAM
expressed concerns to the EPA that the proposed standards could almost never be achieved by
any single, real-world source. In December 201 0, the EPA asked the federal District Court for
the District of Columbia for an extension to re-propose the rule, take industry comments and
then finalize the package by April 2012. We welcome the additional time for a review, but the
new proposal must ensure that the standards are economically feasible and achievable in
practice for manufacturers.
EPA NAAQS for Ozone
The EPA in January 2010 issued a reconsideration of the National Ambient Air Quality
Standards (NAAQS) for ground-level ozone. Despite continued improvement in the nation's air
quality, the EPA has proposed to tighten the standard from the existing 75 parts per billion (ppb)
to a range between 70 ppb and 60 ppb. The NAM's overriding concern with the proposal is that
the high compliance costs associated with the more stringent ozone standard will hinder
manufacturers' ability to add jobs and hurt our global competitiveness. One study estimated 60
ppb would result in the loss of 7.3 million jobs by 2020 and add $1 trillion in new regulatory
costs per year between 2020 and 2030. The Agency has delayed finalizing the rule until July
2012 to allow for continued analysis of the epidemiological and clinical studies used to
recommend the ozone standard.
SEC/CFTC Derivatives Regulation
As end-users of over-the-counter (OTC) derivatives to manage risk, manufacturers in the

United States have a strong interest in the implementation of the new rules on OTC derivatives
in the Dodd-Frank Act. In drafting these regulations, we urge the Commodity Futures Trading
Commission (CFTC) and the Securities and Exchange Commission (SEC) to avoid any new
regulations on derivatives tliat inadvertently harm economic growth. In particular, it is crucial
that new regulations on derivatives include a strong and workable exemption for end-users, like
manufacturers, that use derivatives to hedge commercial risk. In contrast, rules that impose
margin requirements on manufacturers or that impose financial regulation (such as a swap
dealer or major swap participant) on non-financial businesses, could seriously harm the
January 7, 2011
Page 3
recovery by diverting companies' financial resources from much-needed business investment

and job retention and creation. Similarly, regulations that make hedging too expensive will place
manufacturers in the uncomfortable position of either having to divert additional money away
from production or discontinue hedging business risk, which would require liabilities to reappear
on corporate balance sheets, driving up the cost of capital.
OSHA On-Site Consultation
There has been a significant shift by the Occupational Safety and Health Administration
(OSHA) from a more collaborative posture to a more adversarial approach toward
business. Employers, particularly small businesses, should be able to consult with OSHA and
receive its assistance to better understand and comply with existing workplace safety standards
to enhance the safety of their workplaces without fear of citations and fines. Recently, OSHA
proposed a rule that would subject small businesses to enforcement based on their voluntary
participation in these programs. As a result, businesses will be more reticent to reach out to
OSHA for help and less likely to participate in this program. We are troubled that OSHA
performed no analysis to determine the impact of the proposed changes on small business
participation in the On-Site Consultation Program. Instead of deterring participation in these
effective programs, OSHA should focus on developing incentives and strategies that will
encourage as many employers as possible to participate in these programs.
OSHA Noise Proposal
OSHA recently indicated that it plans to enforce noise level standards in a dramatically
different way by redefining what is deemed "feasible" for employers to reduce overall noise in
the workplace and requiring implementation of these actions unless an employer can prove
making such changes will put it out of business. OSHA's proposal would alter a long-running
and effective policy that allows employers to provide "personal protective equipment," such as
ear plugs and ear muffs, if they are more cost-effective than engineering controls like noise-
dampening equipment and muffling systems in order to protect their employees from high noise
levels. Such changes would need to be made by employers of all sizes, regardless of their
costs. We are concerned that preliminary estimates by manufacturers demonstrate that total
compliance costs for fully implementing this proposal may reach billions of dollars. We are
troubled that OSHA is pursuing this change outside' the formal rulemaking process and, as
such, is not following the Administrative Procedures Act that provides opportunity for full and fair
public input and requires sensitivity to small entities.
OSHA Injurv and Illness Protection Program
OSHA is also developing a new regulation that would mandate a standard for employers'
safety and health programs, referred to as an Injury and Illness Prevention Program (12P2).
Such a concept is expected to be proposed in the spring of 2011 and would have sweeping
ramifications on all aspects of both workplace safety enforcement and the promulgation of new
regulations. We are concerned that this new proposal from the Agency may not take into
account the efforts by employers who already have effective safety and health programs in
place or how this new mandate would disrupt safety programs that have measurable successes.
Based on preliminary information from the Agency, this proposal may allow OSHA investigators
to substitute their judgment of the employer's plan on how to achieve compliance and whether
some "injury" in the workplace should have been addressed in some way even if it was not
January 7, 2011
Page 4·
regulated under a specific standard, or did not amount to a "significant risk" as required under
the aSH Act.
Commerce/State/Defense Export Control Regulations
U.S. export control regulations have not been significantly revised since the Cold War.
The result is a system that no longer fully protects our national security, has not kept up with
accelerating technological change and does not function with the efficiency and transparency
needed to keep the United States competitive in the global marketplace. The current regulations
are eroding America's global technology leadership, harming the defense industrial base and
costing U.S. jobs. Rece.nt studies by the National Academies of Science and the Defense
Science Board have concluded that the current export control regulations and system are a
threat to national security. The Milken Institute estimates that if the export control regulations
are modernized, U.S. high-tech exports could increase by $60 billion, resulting in 350,000 new
jobs. Modernization will enhance the government's ability to protect national security interests
while removing the burdens and disadvantages placed on U.S. high-technology manufacturers.
The government should thoroughly modernize export controls to strengthen the industrial base,
enhance national security and improve economic competitiveness. In this area, we applaud the
Obama Administration for the steps it has taken thus far to modernize the export control system,
but more is needed to improve the system in 2011 to protect manufacturing jobs.
DOT Transportation of Lithium Batteries Rulemaking
The Department of Transportation's (DOT) Pipeline and Hazardous Materials Safety

Administration (PHMSA) proposed new shipping and handling requirements for the
transportation of lithium ion and lithium metal batteries in January 2010. The rule mandates
changes in the way lithium batteries and cells and products containing these batteries are
transported in passenger and cargo aircraft. Of note, the PHMSA rejected all requests for
extensions of the comment period and has severely limited industry input and technical
discussions in what is an extremely complicated proposal that creates serious inconsistencies
between international and U.S. aviation regulations. The proposed rule impacts a variety of
products and manufactured goods ranging from everyday consumer items to implantable
medical devices. Billions of lithium batteries and products containing them are shippedannually
by air without incident. The costs of the current proposal are conservatively estimated at a billion
dollars annually. If implemented as currently written, manufacturers will face reductions in
existing air freight capacity, new costs associated with massive supply chain redesigns,
additional training costs, inefficiencies that could cause confusion with international partners
who adhere to alternate standards and lost business to foreign companies who are not subject
to these proposed rules. Manufacturers strongly support a rule that instead achieves
harmonization with internationally agreed-upon requirements for lithium battery transport.
DOT Hours of Service Rulemaking
The DOT's Federal Motor Carrier Safety Administration (FMCSA) has announced
changes to the trucking hours of service rules first implemented in 2004. It has proposed to
reduce well-established 11-hour driving and 14-hour on-duty times for truckers and to introduce
new rest mandates. Over the past six years, driver and motor carrier safety performance has
improved, and truck-invoived fatalities and injuries have markedly declined. For manufacturers
and those dependent on a healthy manufacturing economy, changes to the rule will have major
January 7, 2011
Page 5
impacts on distribution patterns, supply chains, just-in-time delivery standards, trucking capacity
and ultimately will add operational costs to be borne by shippers and motor carriers. In 2005,
the American Trucking Association estimated that reducing the driving time by one hour and
eliminating the 34-hour restart provision would cost over $2 billion to impacted industries. While
the DOT is adhering to the terms of a 2009 court negotiated settlement reached with Public
Citizen by reviewing and reconsidering the 2008 Final Rule on Hours of Service, the
Department is not obligated to alter the rule. The Department's recent public commentary on
poor truck driver health and longevity is drawing some concern because the scientific data to
justify a change in the current rule is not strong. Approximately 80 percent of the nation's freight
by value moves by truck.
CPSC Prod uct Safety Information Database
In 2008, Congress passed and the President signed the Consumer Product Safety
Improvement Act (CPSiA), which, among other provisions, directed the Consumer Product
Safety Commission (CPSC) to produce a product safety database that would provide
consumers with a meaningful tooi to research product safety information that is accurate and
includes first-hand accounts of consumers and public safety entities. There was significant
debate in Congress on the appropriate types of reporters to include in the database. The final
CPSC rule, however, recognizes that Congress provided an exhaustive list of reporters but
strains credulity by expanding the definitions of consumers and public safety entities beyond
their clear public meaning and the intent of the drafters of the legislation. It redefined the terms
"consumer" to include trial attorneys and public safety entities to include "consumer advocacy
organizations." As a result, the database will be filled with bogus reports inspired by political or
financial motives rather than safety. Congress also struck an appropriate balance between the
speed of publication of reports and the desire for accuracy as well as the protection of
confidential business information. The final rule provided for no such balance and creates a
default for immediate publication before any meritorious claims regarding trade secrets or
material inaccuracy are resolved. Once a trade secret is posted within a report, for example, no
remedy is available to undo the damage. These claims as well as claims of inaccuracy,
impossibility, or product misidentification must be resolved before the information is made public
if the database is to proVide helpful information to the pUblic.
We look forward to continuing a dialogue with you and your committee about regulation
and regulatory policy. In future communications, we will outline additional regulations in need of
reform and recommend options for reforming the regulatory process. Together we can help
make the United States the best place in the world to do business and create jobs. But a very
different approach to regulation will be necessary to accomplish this important objective.
JT/rp
NATIONAL AUTOMOBILE DEALERS ASSOCIATiON
8400 Weslpark Drive' McLean, Virginia' 22102
703' 821 ·7000
Janmuy 5, 2011

Chairman
United States House of Representatives
Washington, D.C. 20515-6143
Dear Chainnan Issa:
On behalf of the approximately 16,000 franchised new car and truck dealer
members ofNADA, thank you for your letter of December 10,2010 regarding the
proliferation in recent years of regUlations that negatively impact the economy and jobs.
Because the vast majority of our members are small businesses, over-regulation has been
a primary concern of dealers for some time, and we very much appreciate your leadership
in this impOliant area.
Auto retailing is one of the most highly regulated sectors of our economy. To
demonstrate just how extensive the hand of government has become, I have enclosed the
2010 version of a publication that NADA prepares each year for its membership entitled
the "Regulatory Maze." This document analyzes every department of the typical auto
dealership, listing for each the major Federal regulations tlmt govem its operation. As
you will see, the extent of regulation has become truly staggering - at least 20 Federal
departments and agencies through over 150 separate rules now regulate dealership
operations. And tlns inventories only Federal regulations; it does not attempt to
catalogue the vast a11'ay of state and local laws and lUles with which dealers must also
comply.
To be sure, most of the regUlations that impact dealers are intended to serve useful
p1'l1poses. However, many are unnecessary, duplicative, or overreaching, and our
members constantly are confronted with the unintended - and adverse - consequences
they produce. Even more important, the cumulative effect of tllese regulations is to
increase substantially the dealers' costs of operations and exposure to liability without a
commensurate benefit to the public. With these increased costs and exposure, the
dealers' ability to grow their businesses and expand their workforces is significantly
impaired. Tins is pmticularly problematic in light of the fact that most of om members
are small businesses that lack the scale tllat larger enterprises have to address such
regulatory mandates. Thus, in practice, the regulations impose a shadow cost structure
that presents an ongoing impediment to the nation's economic vitality.
January 5, 2011
Page 2
Your letter asks us to identify specific existing or proposed regulations that have
negatively impacted job growth in the auto retailing sector or threaten to do so in the
future. We accordingly bring to your attention the following examples of rules that
impose costs and burdens with little or no commensurate benefit:
I. Fuel Economy/Oreenhouse Oas (OHO) Rules. The joint NHTSAIEPA

Model Year 2012-2016 fuel economy/OHO rules for light-duty vehicles we believe
exceed Congressional mandates and involve duplicative agency involvement (both
NHTSA and EPA) where one rule (NHTSA's) would provide a superior public policy
outcome. These joint rules, which will cost an estimated $50 billion, were conceived
behind closed doors as part of a so-called "historic national agreement" and will force
manufacturers to build vehicles whether or not there is public demand for them. To add
finther economic uncertainty to the still-recovering auto industry, the Administration
recently issued a Notice of Intent to raise the fuel economy/OHO rules up to 62 mpg by
2025, even though the recently adopted MY 2012-2016 rulemaking has yet to be
implemented.
Moreover, when EPA reversed its prior decision and granted California a Clean
Air Act pre-emption waiver as pmt of the "historic national agreement," the agency
opened the door to forcing the auto industry to dea1 with a patchwork of state regulations.
And now the Calif01l1ia Air Resources Bom'd (CARE) is expected to ask for - and EPA
likely will grant - another waiver for Ca1if01l1ia's next fuel economy/OHO rulemaking as
early as this year. This next regulation will be a job killer since as many as 14 other
states have adopted California's regulation, and CARE does not consider job loss outside
of Calif01l1ia when drafting its rules.
With the enactment of Energy Independence and Security Act (EISA) in 2007, the
fuel economy debate ceased being focused on stringency and is now largely about
structure. NADA has long supported fuel efficiency improvements and believes that full
implementation of EISA would provide better fuel economy/OHO reduction benefits
without undermining the recovery. We would welcome the oppOliunity to work with
your committee to document the need to pursue economically feasible, consumer-
oriented fuel economy/OHO improvements based on NHTSA's existing statutory
authority.
2. Identity Theft and Related Consumer Credit Rules. The Fair and Accurate
Credit Transactions Act of 2003 imposed a series of requirements to help prevent identity
theft and educate consumers about the impact of credit reports on credit decisions. Some
of the requirements, such as the need to truncate credit and debit card numbers on
customer receipts, provide meaningful protections to consumers while imposing minimal
compliance costs on retailers. Many of the others, however, have the opposite effect.
We highlight two examples:
Janumy 5, 2011
Page 3
a. The 2008 Red Flags Rule requires dealers, who already have a
compelling business incentive to prevent identity theft, to erect unduly burdensome
Identity Theft Prevention Programs that require (i) risk assessments, (ii) developing
processes to identify, detect, and respond to identity theft indicators, (iii) ongoing training
and oversight of employees and service providers, and (iv) extensive reporting. Because
of dealers' limited in-house resources, many have been forced to incur considerable costs
to secme compliance assistance from attorneys, accountmlts, and other professionals.
b. The 2011 Risk-Based Pricing Rule requires the overwhehning

majority of dealers, who do not engage in risk-based pricing, to issue either a Risk-Based
Pricing Notice to an ill-defmed subset of their credit customers or an alternative Credit
Score Disclosme Exception Notice to all of their consumer credit applicants. Issuing a
Risk-Based Pricing Notice is not a viable compliance option. Consequently, many
dealers will be compelled to pmchase a credit score for each consumer credit applicant, at
the cost of potentially tens of thousands of dollars per year, solely to meet the compliance
expectations of the agencies that issued this requirement.
3. Cargo Capacity Labeling Rule. A NHTSA rule which requires

manufacturers to place a cargo capacity label on new light-duty vehicles also requires
dealers to redo the label whenever even de minimis changes (that is, changes that increase
a vehicle's weight by the lesser of 1.5% ofGVWR or 100 Ibs.) are made to the vehicle.
With few exceptions, motorists cannot and do not weigh passengers and cargo before
loading vehicles. Since the label does little if anything to increase safety, it is oflimited
or no utility.
4. E-15 Ethanol Fuel Rule. EPA has proposed a IUle which would allow for
the marketing of gasoline with a 15 percent ethanol content. This content level is in
excess of manufacturer design specifications and could drmnatically impair vehicle and .
emissions perfoffi1ance and even dmnage the vehicle itself. Auto retailers will be forced
to bear the blUnt of the significant increase in motorist dissatisfaction that could result.
* * * * *. * * * * *
Auto and truck dealers m'e economic engines 111at power local conmlunities all
across the counhy. In fact, in many towns and cities, dealers are the largest private
employers. But the growth of excessive and often unneeded Federal regulation
represents a hue impediment to the dealers' ability to continue in this capacity.
We hust the information we have provided will be helpful and ask that your staff
contact Michael Harrington at (202) 547-5500 or mhm'rington@nac1a.org if you have any
January 5, 2011
Page 4
questions. In addition, as we uncover other specific examples of regulatory excesses, we

will continue to advise you and your staff. Thank you for your consideration.
Very truly yours,
Phillip D. Brady
President
Enclosure
cc: The Honorable Elijah Cummings, Ranking Member, Committee on Oversight and
Government Reform
The Honorable Edolphus Towns
The Honorable Jim Jordan
'ersonneO
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• DOT hazardouscmaterials- and Accountability Act
procedures ." • FTC prohibition against dec'i;lpttveand • Electronic records retention
handling procedures
• IRS Core InventoryValuation
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safety scandards ., FTC Safeguards Rule • Employee drug testing • IRS treatment of tool plans
• LJFalFIFO Inventory • RCRA • FTC TeJemarki!ting Sales Rule • Employee Polygraph Protection Act
Accounting Method • Mandatory workplace posters
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requirements
- NeWborns' and Mothers' Health
.,,"~.-"0~. ~'\'1:i:TelepI1Arf~/cP;i;l~ffi~r'P;&tection Act • Family and Medical Le<lVe Act ,A
~' • USAP~T810T Act .. Fl:!.d.~!C~i!d,"?upport enforcemerit Protection Act ,
,,' ' regs ",', <.'--:':':' , • OSHA blood-borne patliol<l!ns rule
it ·,Federal Civil Righls Act ;,':; - S8A Loan Guarantl
• FTC;Repo.~:ssicinR~le iBl .. Section 89 of lhe
• Section 179 Expal
" ,,' .lft30: • USERRA
f!I) -WARN
M:¥:1
Our annual update on major

-e:Isales Dep!1llll'
• Gray-markel vehicles
• IRS trmrtment of
federal regulations; state laws
saJespel!ion incentives
• LI FO Inventory
Accounting Method
also apply am! sometimes
• Motor vehicle tax credits
• Monroneysticker and fuel
iing"and ", ' ,econo.~v and safety labelS
include additional requirements
i~
hlcle'aave~~.~HTSA
-NHTSA_, .. ,.c n addition to this guide to laws and regulations,
... - .
;; :';'l-:-
'I""
~NHTSA p,~om~te..,~.~.~
·NH.rSA!.r:~llrei:ulatjori?';
. bus
NHTSA regu'latlOns on school -.2", ~ ~' ,__r I be SlID': ro co=ulr me NADA & AID Federal lUg-
ulatory Compliance GJart Second Edition.. available
~ ':T'~ Ni"~A~'~' . ~'",.. r~~.~,-

r sales ' , r" t ' ~
~
• NHTSA safely bertlalrbag • "1.'~~~ . , -, ,:BD,dr,Shop' at www.nada.orglregulations (requiro member access).
A
,I::, reguiatlons I ~ ~~~,~ -
..... I "~~';CleaIlAlr Act
It lists federal laws and regulations by agency, nores to
"I r , . NHTSA tire regulations ~ ~>-'_ ,,' ,'.,'." "Ahaza,'ous-wesle rules
. :L';.:OSHA HazardCOmmunice!fon whom they applr. and offe:rs Web addresses for further
'lt jf"
~ I -'""": '_..
~B:.,<. ~ /
tJ:.'::Sti'ridard
'~+:'k,:~OSHA Respiratory Protection
'::}?(S;Standard .
infurmation.
~. l!2e'~~ 1.~i::\'_;,?SHA workplace h~~lth

All Departments (General ManagemenVPersDnnel)
!- i[,\"O:-' and safety standards
I F~I Department
• Equal Cr.edJt.opp0rtunity /'
.' -;Y;·;\:'~·' UNJCAP,'
j41t~t~,~;" ':'-YIN and parts marking • Age Dis~rimjnation in Employment Act: Proteus older indi-
-I
~t' : viduals against: age-ba.sed employment disoimination.
• '~'
air CredIT Reporting Act
• ACT Act • Americans With Disabilities Act (ADA): Bwinessa with
.~'.
.h,'k'. '0ik!;'"
"".' ".
y~'
,-,,!.
.
. "'w:.&-'fiT.''-''''''''jij,''ff..ti'W;{i'~''' CCredit Prai::ti,ces Ru
-
Gramm-Leach-Bliley Act
Producer-Owned
15 or more employres mUSt reasonably a,l;commodate
disabled workers and job applicants.
. Reinsurance Companies
Lending and
Leasing am • Consolidated Omnibus Budget Reconciliation A~t
(COBRA): Requires employe:rs with 20 or more employ-
ees m continue health-eare coverage for ex-employees
=d their lamilies for 18 to 36 momhs, depending on
circums=ces.
3
• Electronic deposit af taxes: All entplojTrs having more on used cars. aud must place licns on wages of employees Polygraph Prorea::ion Acr." = be conspiruously displayed. year or less. The remaining value of me inve.rcmenrs would
than $100,000 in aggre.,crate depository taXes must deposlt who are delinquent on child.suppon: payments. be depreciated r:rva: me life ofthe item.
• Mental Health Parity Act: Requires insurers and employers In addltion, the depreciation limiracion on me amount
ilirough me Elecuonic Fed<=..! Tax Payment Synew.
• federal Clvi! Rights Act: Bars employment discrimination to offer menml illness coverage comparable ID that for ph}O-
of certain pas=ger automobiles (Sec.280F) is increased.
• Electronic records retention: Revenue Procedure 98-25 on the basis of race, sex, color, religion, or national origin. iot! illness. Group health plans IruIY not set dollar limits on
from $2,690 to $10,690 in the first year.
~pl:tiIlS me IRS requirements for retaining computerlzd Prevents employers from asking job applicants certain menral h.ea.lrh care lower than limits for gene:ra1 wedical
accountiug records. questions (such as age, marital statuS, or childbearing and surgiot! services. N orhing requires employers to pro~ • UnifOrmed Services Employmen! and Reemplaymenl Rights
plans). Prohibirs workplace sexual hamssment, including vide mental health COVl:rage, and a:rn.in exemptions apply. Act (USERRA): Governs me employment and reemployment
• Emergency-response planning: Federal, sute, and local
behavior that creates a hostile W'Ork environment. rights of members of me U.S. uniformed services.
l-aws require dealers to have anergency-response phns. • Miscelhlllealls record-keeping requirements: A multitude
• FTC's Repassession Rllle: Requires fonnal accounting of of requirements gOVl':tn the length of time re.::ords must • Wllrker AdjUStment and Retraining- Notification Act (WARN):
• Employee drug testing: Unionized de:<tlerships mun bar-
money collected for repossessed vehicles. be maintained. Examples: Personal and corporate income Reqnires dealers to give 60 da~' notice to workers prior to
gain with unions before implementing employer drug
tax records mUSt be kept at least three }-ears; notification =inatioD. or store closings under certain circumsrnnces.
policies. Not uecessary for preemployment dmg test- • Federal llr'3ge-llour and child labor laws: Minimum wage
forms for underground storage rnnks mun be kept indef-
ing. The ADA prohibits employers from discriminating and overtime pay standards; exemptions fot empl~yees
initely; and copies of Form 8300 c.a.sh reports must be All Departments (Customer)
against employees or applicants who have completed a from minimuw wage and overtime requirements, and
kept for five years.
drug ueatmeDt program or are currently undergoing such standatds for employing minors, including teen driving • Americans With Disabilities
a program, as long as they aren't currently abusing drugs. rentictions. The federal minimum wage. is now $7.25 per • Newborns' and Mathers' Health K:,~",;,~~ Act (ADA): Prohibits discrimina-
hour, but State minimum wage rateS =y be higher. Proleclion Act: Employers and tion against the physic.ally handi·
~~I
• Employee ?lllygraph Pralection Act: Prohibits employ-
insuters must provide minimum capped in = of public accom-
ers from using polygraphs in preemployment screening; • Genetic InfGrmation Nondiscrimination: Prohibits discrimi-
hospical-scay bendirs. modation_ Must make reason-
allows polygraph use only in limited cases where an nation based o~ DNA infornution that may affect an
able accommodations to make
employee is reasonably sU.lpccted of a workplace incident =ployee's healm. • OSHA Blood-borne Pathogens
&dlides accessible----fi:>r example,
~
involving economic loss to the emplo}"l"r. Rule: Dealerships nOt within four
• HearUI Insurance Portability and Accountability Act: insralling .ramps, aud accessible
minutes of an emergency health
• Emplllyee Retirement Income SeclIrny Act (ERISA): Dealers Generally prohibirs health insur= Emm denying coverage to parkIng lots, drinking fountains,
facility must have a program to
offering retirement or healm plans mUSl:, among other mings, worker.; who lose or change jobs and b:us insurm from =1ud-
respond to employee:> who suffer
public toilo=, and doors.
provide employees with plan infO, keep records, abide by ing ~ for preerist:ing COndiriOIlS fur more than a year.
cuts. All dealerships .should have • CAN·SPAM (Cantrafling the
f.Ld.uciary responsibilides, and Set up a grlC\'a.Dce process.
• IRS treatment of car shuttlers: Almough nnder general proper first-aid kirs. Assault of Non-Solicited Parnography and Marketing) Ac!:
• EmpllJyee Verification RulES: Must verifY me employment IRS rules, shurtlers may be considered employees, Vl:'tsUS E-mailers must identify a commercial message as an
• SSA han guarantee programs: Small business dealers seek-
eligibiIiry of prospective new employees using 1-9 form independent contractOrs, the IRS may consider ptevailing advertisement or soliciration and provide mcir pOStal
ing working capital, floOlplan, or real esrare financing may be
and E-verify. indusuy practices on a case-by-case basis. The aa<>ency may addresses and a mechanism to opt OUt of future com-
eligible for fedaailoan guaranteeS on loans up to $2 million.
ask, for example, how many days a week an individual mercial e~mails. If recipients opt OUt, sendel"S must Stop
• Equal Pay Act: Prohibits wage discrimination on the works at a dealership and whether he or she works for any • SectiOn 89 07 the Tax Refarm Act: Employers are prohib- sending chem commercial e-mail wirhin 10 busi=S$ days.
basis ofsex..
omer dealership. ited from discriminating ~o-ainn lower-paid employees ill The disclosure requirements don't apply to e-mails that
• Estate tax: The 2010 StatuS of the EState Tax is unset- th~ emplo}"l"e benefits packages. relate to transactions or rebrionships, such as for warranty
• IRS treatment of demo vehicles: Rc:venue Procedure 2001- or recall-repair issues or me completion of tmnsa.ccions
tled. The Estate Tax is set to expire in 2010, but effon::s
56 offers dealers alternative methods for determining me • Seclian 179 Expensing: The 2009 Stimulus bill CPL 111-
are undervny in Congress to exrend me tax. requened. by me consumer. No one may send commer-
value of demo use by qualified salespeople and other deal- 5) extended enhanced Small Business Expensing under
cial e-mails to wireless devices unless recipients provide
• family and Medical Leave Act: Must pOSt a notice inform. ership employees. Ir defines what connitutes limited per- Sec. 179 of the tax code through the 2009 !Xi year (end-
express prior aumoriz.ation to receive chew. So iliat send-
ing emplo}"l"es of their right to rake this limited, unpaid sanal use and stre:unlines record-keeping requirements.. ing Dec. 31, 2009). The package doubled the amount
ers can recognize wireless addresses, me FCC mainrains a
leave fOr personal and .fu.mily medical emergencies and businesses could immediately, or in me fust year, write-off
• IRS treatment oftaol plans: Tool and equipment plans for list of wirebs domain names at www.fcc.goy/cgb/policy/
must comply with appropriate requests for such leave. rheir taXes for capitol invt=m.ent in 2009 &o~ $125,000
service technicians and omer employees must comply wim DomainNameDownload.htmL Commercial e-mailers
New provisions apply to leave related to military se.rvice. to $250,000 for purchases of new, quaJifying equipment
me IRS's business connecrion, substantiation, and rerum must cbe.::k the list monthly. (Additional provisions pro-
of up to $800,000 (increased from $500,000).
of exCc:>s payment requiremenrs. hibit deceptive headers, misleading subject lines, ahd
• Federal child-slIppart enforcement regs: Requires stares to The law also includes an accelerated Bonus Depreciation
orhe:r spam tactics.)
have procedures under which liens can be pUt on person.al provision. For 2009,· companies could also write-off an
• Mandatary workplace posters: Norices, 5uch as "Your Rights A t= message may also be considered an email and
properry---inc1uding vehicles-for overdue child support. addicional 50 percent of new inYCS'tment expenditures fO~
Under the FMLA", "Equal Employment Opporruniry Is me therefore subject to the CAN SPAM Act if it is sent to
Dealers should chcck clu:t child.suppon liens don't exist it= subject, under c:um:nt law, to depreciation oyer 20
Law," "Fedf:rn.l Minimum W~o-e," and "Notice: Employee an email address - mar is, if it has an internet domain
4 5
name mer ili.e "@" rymbol (wherher the email ad.dr~ is neM productS or paS\: signs in prominent places uilling con· '~~'OMO'V
displayed or not). This means 1:ha1: NO commercial teXt
message (deemed to he an email) may be sent to a wirdess
== that copies of the warranties are available.fiJi: review.
• IRS Casll-repilrling Rule: Dealers receiving more thAn
~..~
-o'do.
AD ~~•
~
device without "e:qm:ss prior authorizarion." Mady having 10
an "esrablished business relationship" with the reci.pienr i:;
$10,000 in cash in one transactioll or in twO or more
related transacrions must file IRS/FinCE:N Form 8300
-e.'''t
,
oo/@
4"Q OCIA't\
nor enough..
with the IRS wirnin 15 calendar days and muS\: provide
• Driver's privacy Protection Act: Denies access to per- written notice that me report was filed to me persoll
sonal info in Srate motor vehicle records except for limited named on the repon by January 31 of me following year.
purposes, such as driver safety, theft:, and recalls. Also "Cash" includes certain cashier's checks, travcler's checks, Get to Know Your Business Partner-
The Federal Government

n::stricrs the release of personal infO for ma.rkering. money orders, and bank drafts.
• FTC Privacy Rule: Dealers must issue notices of their • Magnus-san-Moss Act: Dealers must give consumers
privacy policies to their finance and lease C\l.Stomen; and, cerrain required information on warranties and limired
in some circumstances, when ,he dealer discloses nonpub- warranties.
lie informadon about consumers to third, parde:'!. Also • Have you heard aDout the new Risk-Based Pricing
• efflce of Foreign Assets Control (OFAC) restilctions: Dealers Notice requirement? What about the new model
restricts disclosure.li of nonpuhlic personal informarioD.
may not enter into transactions with certain sanctioned privacy notice? Is your Identity Theft Prevention
Beginning December 31, 2009, dealers who correctly use
countries, governmencs, and specially designated organi- Program fully compliant? Find out what's required from
a new FTC model privacy notice will have safe harbor an FTC attorney at the Federal Agency Outreach Pavilion.
zations and individwls, including -those appearing on an
protection for me language used to describe rneir privacy
electtonic list maIntained by OFAC. • Are you aware of the September 2009 IRS field
poliq. Although the use of the new model noria: i:; volun-
directive on UNICAP audits? How about the IRS's
uzy, dealers whose priv:lC}' norices condnue w use sample • Telephone Consumer Protection Act (TCPA): Imposes recent private letter ruling on tool plans and its
l=guage from me appendix to the 2001 privacy rule will num~row; restrictions on telemarkecing, including the Chief Counsel Advice on UFO? Visit the IRS Motor
lose safe harbor protecdon for the use of mat language national and company-specific do-nm-call rules, calling_ Vehicie Technical Advisor.
mer December 31, 2010. rime restrictions, caller ID requiremems, fax. advertising
• Are your painters trained on EPA's new body shop
rules, and restrictions on the use of autodialers and prere- rule? EPA has the solution.
• FTC prGilj~itiGn against deceptive and unfair trade practices: corded messages. Fax ads must only be sent to aurnorized
Prohibil:S deceptive or unfair pI1l.cdces. For =mple, mer- • Need the latest on vehicle safety and emissions?
recipiems and millt include a phone number, f.a.x number,
chanL'> must disclose to would~be buyen previous material NHTSA and EPA have the info for you.
and roll-free opt-out rriochaniml (each available 24m on
damage. More than half the srates specify a dollar amount
the first page of the f.a.x ad. • Are your employees trained to properly handle
or formnla for determining how much cbmage must have hazmat? See CCAR experts about this program.
The FCC considers ten messages to be "phone calls"
o=med to a new vmicle before disclosure is requitM. under the TCPA. Thi:; means that you =not send a reA"!
• Want to reduce energy use and save cash? EPAS
message "soliciuuioD~ toa phone number that is on )'our Energy Star program has the tools.
• FTC Safeguards Rule: Deal= must develop, implement,
dealership company-specific "do not call" ("ONC") lis!:;
and maimain-and regularly audir-a cOIIlprehensiv~,
• Interested in an SBA guaranteed ioan? SBA experts
written security program to pro=r custOmer infonnarion. you = o t send a text message "solidmtion" to a phone
will be on hand to advise.
number that is on me national DNC list (subjecr w me
• FTC Telemarketing S.ales RUle (TSR): Impa.o;es rn=y of the "esCl-blished business relationship" and orner provisions of
TCPA restrictions (below) on deal= who tderrwker across ili.e national DNC rules), and; you =not send any texr
stare lines. Requires dealers who sdl, or obUlin payment :nrrho- message whau:oever to a ee.lluIa.r telephone number- solie- This is YOUR OPPORTUNITY to ASK QUESTIONS, PROVIDE
rization for, goods or services during irit=te phone c:l.lls irarion or not, whether the number is on a ONC list or FEEDBACK. and OBTAIN COMPLIANCE ASSISTANCE.
1:0abide by the prohibition against: numerous <w:eprive and DOt _ using an "aUtomated dialer system" unless you have
abusive acrs and to maintain certain records for 2.4 momhs. A the called consurm:r's "prior express consent."
recent amendment ro me rule prohibits prerecorded relanar-
• USA PATRIOT Act: Dealers must search their records
kedng calk wilhom a conm='s express wriuen agreement,
*
and provide information about individuals or entities VlSitNADAS
requires such cills to provide a keypress or voice acrlvattd opt-
OUt mechanism at the ou=t of me calls, and requires me
calls
identified by me fe<kral Financial Crimes Enforcement Federal Agency '*, NADA CONVENTlON & EXPO
NetWOrk with whom mey conducted uansactions Ot cre- FEB. 13~15, 2010
to ringfor 15 seconds or 4 rings befOre disconnecting.
me Outreach Pavilion ;'o[:><;"'irlf'''''
• FTC Written Warranty Rule: Oea!= ffillSl: display warranties

ated accounts. Dealers are temporarUy exempt from
law's ami.money-laundering prog= requirements.
at the NADA Convention in Orlando " ,C,! '''''GO to Know
Booth #2013 Voice of the Dealer@.•:'VisionforTomorrow"
New- and Used-Vehicle Sales Departments of w:hicles lacking safety or emissions certifiCltion. tides. Vehicles v,ith a greater than 16,OOO-lb. gros:s v~hide exceed $10 million, must comply with me UNICAP
weight racing (GVWR) are exempt from the dUclosure requiremenrs contained in Semon 263A of the In,emal
• American Automohile 12beling: Act: New cars and light .IRS treatment of salupersoll incentives: Facrory inceIldves
requir=ents, as axe vehicles 10 model J=-IS old or older. RevenU:e Code. IRS Field Directive LM:SB4~0909·035
trUcks must have a domesde-pans content label showing paid direccly to salespeople are not wages for taX purposes.
(Septembcr 15, 2009) provides IRS field examinm with
percenrage of U.S. or Canadian parts; coWlmes conmb-- • NHTSA recall regulations: New vehicles and pans held in
• UFO (Last·llliFirst-Ollt) inventory accounting method: The a UNICAP ~audlt tool ki," and announces the suspension
uting more than 15 percent of me pans; origin of engine dealership inVl:!ltory chat are parr of a recall 0lllSt be brought
Ille of me UFO inventory method requires compliance of new UNICAP audits through December 31, 2010 to
and uammission; and locarian'of vehicle assembly. Dealers inro compliance before being delivered; dealers m~y not
with the conformity requirement. allow dcaler taxpayers "an oppormniry ro comply with thc
must ensure mat labels remain on vehicles until sold. de1M:r these productS and wait for -the new buyers ro bring
legal reasoning outlined in TAM 200736026.»
• Motor vehicle tax credits: Buyers of hybrid, fuel~cell, them back. ro the de:ak.crhip fOr repairs:
• DOE/EPA gas-mileage guide: Dealers must make this
al,emative-fuel, and eeITa.in clean-burning diesel vehicles
guide av:ailable to prospective new-vehicle buyen. May • NHTSA regulations tHl school bus sales: Dealers r=y riot F&I Department
qllll.lify for -tax credits depending on the vehicle's fuel
download the guide from 'WWW.fueleconomy.govand may sell, lease, or give aW<iy large, new passenger vans with
efficienc;y (subject to phaseout ru.l.es). For sales of vehicles • Equal Credit Oppot'tsJnity Act (ECOA): Regularion B pro-
also download a fact meet, 8 Simple Steps to Lowtr Futl more than 10 seating positions if they kriow the vehide
used by w::-exempt entirks., the seller b;; ueated as the taX_ hibits discrimination in credir transactions based On ma,
Com, from www.nada.org. will be used to tru.nsport nudenrs to or from school'or
payer and is able ro claim the credit so long as the amOUnt sex, color, marital Sl:arus, rdigion, national origin, age, and
school activities. Schools mus, purchase or lease a school
• EPA emissions certification: Dealen must provide a form allowable as a credit is clearly disclosed to rhe user. public.anist:a.nce starns. The dealer/creditor is required both
bus or multifunction school activiry bus
to new-vehicle customers certifying the vehicle's compli- ro notify- applicants in a timely fashion of
• Monroney sticker (Price labeling law): Requires dealers for stich purposes.
ance with emissions standards. actions raken. OD-and. reasons for deny~
to k~ stid=:s on new p:as.senge:r: cars showiug we manu-
• NHTSA safety be!Vairbag regulations: ing-applications, and to rerain cerr:ain
• Federal bankruptcy law: A finance company (and the facrurer's suggested retail price, plus othcr COSts, such as
At-risk: individuals can apply to NHTSA records.
dealership acting on its behalf) should perfect its security OptiOllS, fed.er:al taKes, and handling and freight charges.
to have airbag switches inscalled. Dealcr-
interest within 30 day:> mer a customer rakes possession Stickers also should show recently .revised EPA fuel econ- • Fair Credit Reporting .Act (FeRA): Dealers
ships may insrall switches for consum-
of a vehicle, regudless of state law. If the compa.o.y falls omy and NHTSA crash-test SLar ratings. NHTSA also are resrricrcd in their use of credit
ers with NHTSA authoriz.a.tion letters..
to do so and the customer files for bankruprey within 90 requires dealerships mat alter covered vehiclcs to attach reports for consumcrs, job applicants,
Dealerships musr bc responsive to con~
dap of when the firlO.ncing agreement is signed, the bank- a second label adjacent to the Monroney label, stating, and. employees. Consumers' reportS gen-
sumer requests for rear-seat lap/shoulder
cuprey trustee =y avoid the lien. Deale:r:s.hips that fail to ~This vehicle has be= altered. The scated star ratings on erally may be obrained only purstlant
san,ry belt rerrofits in older vehicles.
perfect a lien in a timely manner on behalf af a fInance the safety label may no longer be applicable.~ The role to conromcu' written instructions or if
company may be Hable for any loss. does not specifY rhe size or fonn of this label, only that it • NHTSA tire reguI3!ions: Require prop- conromers iniriau: a business rrwS:l.ction
be placed as close as possible ro Montoney labels on amo_ er repla==t or modificarion of the (nOt if they merely ralk with salespeople).
• fTC Door-to-door Sales Rule: GiVes consumers a three-day mobiles that (1) have been altered by the dealership and information label when replacing tires Dealers must give job applicants and
"cooling off" period for sales not consummated at the (2) have test results posted. employees a separate document infonning thcm that a
or adding weight ro vehicle prior to fIrst sale or lease. Ako
de:a.lership..Does not apply to vehicle ~des at auctions, tent
require ch:a.t consu.m.ers be given a registrarion card when credit report may be obrained and must obtain prior,
sales, or other remporary places of business if sold by a • National Highway Traffic Safety Administration lNHTSA) buying new tires. Other rules goW;tll handling and dis- written authorization to access the report. Dealel'1i may
seller with a permaneDt pl~ of business. alteration regulatiO-Il: Dea[en who significantly alter new
Dot share credit informarion 'With affiliates unless they
posal of recalled new and used tires.
vchicles must WIX a label identifying the alteration and
• fTC guide!ines for fue!-milaage advertising and alternative- give con.sumen notice and the oppommiry to opr out. If
sraring that the vehicle stIll meets federal saf"ery and theft • Truck excise tax: A 12 percent excise UIX genexally applies
fueled-vehicle advertising and labeling: Dealer and manu~ dealers rake advene action bascd on the report, they mUst
sr:mdards. NHTSA tire-placarding and relabeling require_ to the first r=Li1 .sale of (1) truck chassis and bodies with
facrurer fuel~economy adven:!J;emems must srate that the notify conromers and follow addidonal procedures with
ments: FMVSS No. 110 requires a new ,ire infonnation a GVWR in excess of33,000 lb. (Class 8); (2) trod:: mer
numbers a;e estimates and come from EPA; alrernative- job appliClnts and employees. Dealers with buy-here/pay.
placard/label whenever parts or equipmenr are added mat and semitr:aller bodies with a GVWR in = s of 26,000
fueled vehicles must be properly labeled. here operntions have other responsibilitics.
arguably reduce a vehicle's cargo-carrying capaciry, or lb. (Class 7 and 8); and -(3) ~highW<iY tractors," Wlless they
when replacement tires differ in she or inflation pressure have a GVWR of 19,500 lb. or less (Class 5 and Wldcr) • The Fair and Accurate Credit Transactions (FACT) Act af
• FTC Used Car Rille: KBuyer's Guide~ srickers arc required on
used Ydticle side windows, disclomJg mah, modd, yeu:. YIN, from those referred to on the original. and a gross combined weight rating of 33,000 lb. or less. 2003 significantly amended FCRA by adding several
whcrher vehicle is offered ~as is' orwiw a warranty (and, ifso, Dealers selling dass 5 vehicles with more than 33,000-lb. identiry theft prevention and other duties wi,h differ~
• NHTSA collision-loss guide: Dealers musr make this guide
whax kind of warranty), and availability of a scrvice COntraa. gross combined weight rating or Classes 6 or 7 vehicles ing implemenrarion dates. Duties include requests for
Stickers must 'W:l.fn that all promises should be in writing.
availabk to prospecrive nc:w-vehicle buyers.
should apply the ~primary design" = to determine if a records from victims of ID theft; &aud and active-dury
For sales in Spanish, the KBuyer's Guide" and requlm! oms- • tlHTSA Odometer Rule: Prohibirs odometer removal or vehicle is a =bk tractor or a non=ble rruck. alertS on credir reports; disposal requirements for credit
refem1ce in me sales contract must be in Spanish. tamperiug, as well as misrepresendng a vehicle's true repOrt info; opt~our disclosure fonnaning requirements
• Uniform capitalization (UNfCAPl: Dealers who (1) "pro-
odometer rcading. It forces recordkeeping to create a for prescreened credit solicirations; the Federal Reserve's
duce" properry or (2) :acquire ir for resale, if weU- average
• Gray-market vehit:les: EPA, Department of ~paper trail," and it requires odometer discloSLlfes on stare Regulation FF restrictioIl$ on obtaining, using, and shar-
Transportation, and CUstOms restrict the importarion/sale annual gross receipts over the three preceding taX yC31'1i
8 9
ing "medical informatIon~ in credit transactions; the FTC Service and Parts Department cal product info sheets on-site and accessible; and train sites involving used oil managed after 1993. The Service
Red Flags Rule, which requires creditors and financW staffers to properly handle me hazardous materials they Station Dealer Exemption Application (SSDE) requires
• Glean Air Act: Dealerships are prohibited from tam~ work with. Also, under EPA's Comm~niry Right ;:0 dealers to properly manage their oil and to aCCept oil from
instirudons to develop and implement a wrim:n Idendry"
Theft Prevention Program mat contains procedures to pering with, replacing, or removing emissions-conuol Know regulations, dealers mUSJ: list annually wim state oo..it~yoursclrers.
identify, detect, and respond to "red flags~ indicating equipment, such as Cl.t<1.lytic conveners. CFC recycling and local authorities any rank holding more than 1,600
regs require dealership air-conditioning rechs to obtain .. UNICAP: See "New- and Used-Vehicle Sales
me possibility of identity meft (presently in dfecr: but gallons.
certification and to use certified recycling and reco=ry Departments."
FTC enforament delayed until June 1, 2010); the FTC
Address Discrepancy Rule, which requires usen; of cred.iJ: equipment to capture spent rdIigenm, including HFC- • OSHA lock-outftag-out procedures: EJ::plain what service
134a and other non~ozone~dep!etingrefrigerants. The departments must do to ensure machines, including vehi~ Body Shop
reporo to develop and implement pro.;edures to verify a
custOmer's idendty when =iving a "Notice of Address act also regulates any fuds dealen store and dispense a.s cles, are sa.fcly disengaged before being serviced.
wdl as the alternative fuels dealers use and sell, including • Clean Air Act: National paint and hazardous air pollu~
Discrepaney~ from a consumer reporting ~ncy; and me
• OSHA workplate health and safely standards: Extensive tion rules require reformulated, ~vironmentally safer
ul=~low~sulfur diesel. It restriCtS emissions from solvents
FTC Affiliate M:uketing Rule, which generally requires a regu1uions cover a rmrltirude of ~"[)rkplace issues and prac~
and chemicals. pain[S and flnishes, special handling procedures, and
bl15iness ro o!IeJ:- CWl:omeDi the opporwniry" to opt out of rice;, ftom hydraulic lift operation to me number of toilers recordkeeping
receiving solicirations from me business's affiliates before required... Que standard requires employers to d=ine if
• Clean Water Act: Sets standards for fedeml, srare, and
affiliates may market to me CI1Storners. Beginning January local regu.h.tion of wastewater: and stonn water at dealer~ workplace hazards warrant personal prOtective equipment, • EPA hazardous,wllste rules: See "RCRA" under "Set'Vice
1, 2011, de:a.1ers who obmin credit reportS on meir credit and Parts Departme!lt.~
ships and comprehensive rules governing abo~und then tmin effil?!oyees on irs usc. Verbal reporrs must be
cWl"tomern also mll$l: comply with the Risk~Ba.sed Pricing made wimin eight hours ofany incident involving hospir:al~
oil Storage ranks.
Rule, which involves a new nori.;e J;l;quirement. II OSHA Hazard Communication Standard (Right-ta-Know
izadon ofthree or more WOLkers or any dea.th.
• Department of Transportation (DOn hazardous-materials- laws): See "Service and Parrs Depanment.~
• FTC Credit Practices Rule: Dealers are required to pro~ handling procedures: Requin; parrs employees who load, • Resource ConservatiGn and Recovery Act (RCRA): Compre-
vide a written disclorute sratemeut to a cosigner before • OSHA Respiratory Protection Standard: Requires writ-
unload, and package hazardous products, such as airbags, hensi~ environmental law regulating many dealership
the cosigner signs an insr:al1ment sales contract. Dealers ren programs describing how ro select, fit, and maintain
batteries, and brake: fluid, to be trained in safe handling fu.ru:rions, including underground no.rage tanks and the
cannOt "pyramid~ late charges (that is, add a late charge respirators to protect body shop workers from haz:ardous
practices. stora£:e, management, and disposal of used oil, antifreeze,
onto a payment made in full and on time when the only chemicals.
mercury products, and hazardous waStes. Underground
delinquency was a la~ ch2rge on a pr"",ious installment). • IRS Core Inventory Valuation: Revenue Procedure 2003~
tanks must be monitored, tested, and insured against • OSHA WOrkplace health and safety standards: These =en~
20 creates an optional method for valuing core inventories leaks; leaks and spills must be reported to federal al'ld
• 6ramm-Leacf1:-Bliley Act: See "FTC Privacy Rule~ sive regulations affect body shops in many wa~, includ-
for raxpayers who use Lower of Cost ot Matker Vallli!.don local authorities and cleaned up. The law also regulates
and "FTC Safeguards Rule" under "All Departments ing mandating the use and care of protective equipment,
Method. new-tank installation.s. Dealers must obtain EPA ID
(Customer)." such as face m~, gloves, and respirators. Hex chrome
• UFO/FiFO inventory accounting method: Re~nue Procedure number.> if they generate more than 220 lb. per month standard limits air emissions during sanding and painting.
• Producer-Owned Reinsurance Companies (PORCs): IRS 2002-17 provides a safe-hatbor method of accounting (about half of a 55-gallon drum) of certain subs[;1nces (See also "Service and Pans Department.")
Notice 2004-65 removed certain reinsurance arrange- mat authorizes me use of replac=ent cost to value year~ and must use EPA~certi£ied haulers to remo~ the wa5re
menr:s a.s "listed tra.n5actions, ~ but states that the IRS will from the sire; dealers must keep records of the shipments. • UNICAP: See "New- and Used~Vehicle Sales
end pares inV>:lltory. Deparrmenu."
contiuue to scrutinize rrnnsactions that shin income from Used oil should be burned in spa.r;e heaters or hauled off-
tax:payen; to rdared companies "purported to be insur~ • NHiSA tampering regulations: Prohibit dealers from =~ site for recycling. Used oil filters must be pun~red and • VIN and parts marking: Dealers rruty not alrer, destroy,
ance companies rhar are subject m lime or no U.S. federal dering inoperative safety equipment installed on used drained for 24 hours before disposal. or ramper: wim vehicle identifIcation numbers or anti~
iucome taX." vehicles in compliance with federa.l1rw.
• Safe Drinking Water Act: To protect underground drink~ men parr~marking ID numbers and should use properly
• Truth in Lending and Consumer leasing Acts: Regulations • NHTSA tire rules: Dealers must report sales of defective ing water from contamination, dealerships may be barred marked replacement pam. •
Z and M cover consumer credit and consumer leasing tires when me tires are sold separately fmm vehicles, and from discharging wa5Ie liquids-----5'Uch as used oil, and-
transactions, respectivdy, specifying information to be must properly manage recalled tires. freeze, and brake fluid-into septic synem drain fidds,
disclosed to a COIlSumer bt:fore completing the rransac~ drywdls, cesspools, orpirs.
• OSHA asbestos standards: Dealenhips must use certain
tion, and iuformatiou ro be disclosed when advertising
ptocedures during brake and clurcil inspections and repain • Superfund (Comprehensive Environmental Response, Com-
consumer credit transactions or leases. For example. deal-
ro minimize workplace exposure. Water, aerosol cleaners, pensatian, and liability Act [CERClAJ): As wasre gener~
ers who advrrrise a lease down payment or monthly pay--
or brake wa.sh= =y bt: used m comply with me srnndard. mrs, many dealerships are subject to Superfund liability.
ment amount must disclose in lease ads mat the adver~
Dealers must be careful when selecting companies ro haul
tised deal is a lease; the toral amount due at lease signing; • OSHA Hazard Communication Standard (Right-ta-Know
waste off-site. Dealers can deduct the coS[ of cleaning
number, amount, and period (for example, monthly) of laws): Must inform employees about cilemical hazards
up conraminated soil and water in the year it's dom.
payments; and whether a securiry- deposit is required. thcy may be exposed to in me workplace; keep chemi~
Dealers may qualify for an exemption from liability at
10 11
National Black Chamber of Commerce®
1350 Connecticut Avenue NW Suite 405, Washington DC 20036
202~466·6888 202-466-4918fax www.nationalbccoorg info@nationalbccoorg
DECEMBER 28, 2010

Committee on Oversight and Government Refonn
Re: Regulations that Negatively Impact Jobs and the Economy
The National Black Chamber of Commerce (NBCC) is pleased to provide this response
to your request for infonnation regarding the impact the federal regulatory process is having on
the economy and jobs. The NBCC thanks you for your dedication to this highly important issue,
and looks forward to working with you as you explore tins and other matters as the next
Chainnan of the Oversight and Government Refonn Committee.
I am the NBCC's President and CEO, and I represent for minority business and small
business development on many issues including environmental and energy issues, housing, civil
rights, e-commerce, entrepreneurship, corporate responsibility, and health. My response will
focus on environmental regulations that will stifle job creation as well as existing programs with
the potential to create jobs but for a lack of oversight and agency implementation. If you have
any questions or requests for additional information on these issues, I urge you to follow up with
me.
. A. Impact of EPA Regulations on Minority Jobs and Businesses
In 2009 and 2010, the Environmental Protection Agency (EPA) has taken an aggressive
approach to environmental regulation; EPA has spent the past two years chuming out major
regulations tlmt impact every sector of society and adversely impact the economic well being of
minorities more than society at large. EPA's actions not only go against what was initially
intended when the environmental laws were enacted, but they also tln'eaten to jeopardize
economic development and employment rates.
1
According to the DepaJiment of Labor, there aJ'e 15.1 million unemployed people as of
November 2010, with the national unemployment rating increasing up to 9.8 percent. The
American people aJ'e suffering, but the plight of minorities is even more disturbing.
Unemployment rates among racial groups differ draJnatically with whites at 8.9 percent;
Hispanics at 13.2 percent; and Blacks at 16 percent. 1 This growing trend cannot be ignored.
Minorities, who constitute a large majority of low- to very low-waged population, continue to get
the short end of the stick.
While EPA continues to forge ahead with regulations sme to hinder economic recovery,
not only for business owners, but the general public alike, of particular concern is the economic
impact on minorities, specifically African Americans and Hispanics. An economic impact
analysis commissioned by the Affordable Power Alliance2 on the potential impacts of the EPA
Endangennent Finding on minorities and low-income populations indicates that GHG regulation
will have the effect of a discriminatory tax based on race, and unemployment among low-wage
workers, who are disproportionately African American and Hispanic, is expected to increase
exponentially. This is because a dispropOliionate percentage of their income will be spent on
energy, including gasoline, residential electricity and residential natural gas prices, which are
predicted to increase significantly by 2030. The same rationale applies to B1ack- and Hispanic-
owned businesses, which tend to be smaller and less well capitalized than white-owned
businesses and thus are much more vulnerable to economic tunnoillikely to result from EPA
GHG regulation.
The impact does not stop at cost of living expenses. Unemployment rates for African
Americans and Hispanics will also be disproportionately affected by GHG regulation, given that
the minority population will comprise the majority of citizens in the U.S. by 2050. If history is
any indicator of what's to come, unemployment rates for African Americans have been about
twice that of whites. Not only do unemployment rates for minorities tend to increase more
during recessions, and decrease less dW'ing recoveries than their white counterparts, but the
dmation of unemployment also tends to be longer. Minorities already affected by the CW'l'ent
economic downturn will suffer even more so if EPA regulates GHGs as proposed. According to
the Affordable Power Alliance economic impact analysis, cumulative loss ofjobs by African
Americans is predicted to be 1.7 million by 2015 and 4.9 million by 2030; and for Hispanics, 2.4
million by 2015 and 6.5 million by 2030. 3 The negative impacts cited in this study portend
serious national, if not global, implications. The negative impacts cited in the study portend
serious national, if not, global implications.
B. HUD Section 3 Program and Job Creation
1Employment Situation Summary (December 3, 2010). The unemployment fate for Asians was 7.6 percent.
2Roger Bezdek, Management Information Services, Inc., Polrmtial Impact of the EPA Endangerment Finding on Low Income
Groups and Minorities (March 2010), avaiklble at
http://www.!l ffordablepowcralliance.org II .inkClick.aspx? mctickct-GBqH57mHH5w%3d&taJ)id- 40
3 fd.
2
Since you requested infOlmation on existing regulations that impact employment, I would
like to call attention to the U.S. Departinent Housing and Urban Development's (HUD) Section 3
Program, which I have championed for decades. The plliJlose of this program is to utilize the
billions of dollars in federal funding, which is allocated annually to HUD for the specific plliJlose
of creating jobs and training opportunities for residents of low- and very low- income
communities, through the community development process.
I, along with the U.S. Chamber ofCOlmnerce, have been working to pushHUD to
implement and enforce Section 3 of the HUD Act of 1968, which requires that employment
opportunities generated by HUD financial assistance for housing and community development
programs be targeted toward low- and very low-income persons. Notwithstanding mandatOly
regulatory language and case law, recipients of HUD funding have continuously failed to comply
with Section 3, without sanction, for several decades. Instead of providing training and
employment opportunities for the targeted local population, a majority of the fund recipients
often times ignore the mandate altogether to the detriment of the poor.
In December 2008, the Chamber filed two Freedom of Information Act (FOIA) requests
for docmnents relating to the implementation and effectiveness of HUD' s Section 3 Program.
After nine months and at least a dozen inquiries to HUD's FOIA office and Office of General
Counsel, HUD [mally relinquished the docmnents in August 2009.
An objective review ofHUD's own documents revealed not only the potential
deprivation ofbenefits intended for the poor, but also a systematic failure to monitor program
compliance. Under the Section 3 Program, fund recipients must monitor their own compliance
and compliance of their contractors and subcontractors as well as submit a report to HUD
annually. For FY 2008, a paltry 349 out of 3193 Public Housing Authorities and 143 out of 1137
Block Grant Entitlement Communities submitted annual reports. Although nearly 90 percent of
HUD fund recipients completely disregarded the repOlting mandate, HUD has consistently failed
to apply appropriate sanctions.
In September 2009, the U.S. Chamber and I met with Staci Gilliam-Hampton, Director
for the Section 3 Program, to discuss the program's failures and suggest comses of action to
remedy the situation. As a result of our efforts, HUD launched a new campaign to increase
program compliance in October 2009. As of March 2010,3100 local and state government
agencies had responded, revealing the creation of 17,000 new employment and training
opportunities for Section 3 residents and facilitated tlle award of more than $340 million in
HUD-funded constmction contracts to Section 3 businesses. The funding also enabled about
3,600 Section 3 businesses to receive contracts to complete work on HUD-funded projects.'
While I applaud HUD's accomplishments, the fight is fm' from over. Now that HUD has
established a seemingly effective monitoring system, the next and primmy goal should be
ensming compliance with the job creation mechanisms of the program. If implemented properly,
Section 3 could generate substantial employment opportunities for those who need it most in a
tinle when jobs m'e most scarce.
3
It should be noted that in addition to the millions of federal funding allocated to HUD
annually for implementation of the Section 3 program, HUD received $13.6 billion in funding
under the American Recovery and Reinvestment Act CARRA), approximately $7.8 billion or 57
percent4 of which is subject to the statutory and regulatOlY requirements of Section 3 of the
Housing and Urban Development Act of 1968. 5 John Trasvifia, HUD Assistant Secretmy for
Fair Housing and Equal Opportunity, stated that "Section 3 is the law. We will work with state
and local governmeuts, public housing authorities, labor organizations, businesses, and
community leaders to create job opportunities and vigorously enforce the law.,,6 I completely
agree with this proclamation, and I am simply requesting that these funds be utilized in the way
Congress intended.
To ensure that implementation of Section 3 does not fall by the wayside as it has in the
past, we continue our efforts to monitor its progress. For example, the U.S. Chamber followed
up with a FOIA request in October 2010 to obtain an update on compliance statistics for FY
2009, however HUD's FOIA office reported that it had no record of the request. Accordingly,
another FOIA request was submitted December 15, 2010. Our efforts, which can and have been
thwarted by bureaucratic red tape in the past, are not enough. After decades of haphazard
implementation and oversight by HUD, you are in the best position to achieve program
implementation by holding HUD accountable for properly utilizing federal funds and complying
with the requirements of the Section 3 program. I strongly urge you to take a hard look at
HUD's execution of the Section 3 Program and consider the benefits that the successful
inlplementation this progrmTI can bring to low-income communities.
C. How to Fix the Problem of Overregulation
Rising energy costs have long been a major concern for the business community,
especially with the recent anti-dependence on foreign oil seutiment and the realization that
domestic energy independence is not imminent due the debacle that is the permitting process for
building and operating energy facilities in the U.S.? EPA's proposed GHG regulations has done
nothing to assuage these fears. Almost every major environmeutallaw requires EPA to conduct
a real, meaningful analysis of the economic and job-loss impacts of the regulations it issues there
<I The majority of Section 3 covered ARR.I\.. f1-111ding was proVided under the following program areas: PIB Public
I-lousing Capital Funds $4 Billion; Neighborhood Stabilization Program $2 Billion; Community Development Block
Grants $1 Billion; Native American Housing Block Grants $510 Million; Assisted Housing Energy & Green Retrofits $
250 Million; and Lead Hazard Control $ 78 Million (LHC Grants Only).
5 I-IUD Economic Stimulus Funding and The Creation of Jobs, Training, and Contracting Opportunities available at
http:// www.hud.g9v(offices fElleo /section3 /}:!:con-Stimulus-sec3-finn.Lpdf
6 HUD Press Release, I-IUD Steps up Enforcement ofJob Creation Requirements for State and Local Governments,
March 8, 2010 available at
http://por!:'.ulmQ.gQv/porl"al/page/portal/I-TIJD/press/pressrele~lsesmediaadvisories/201D 1 [·HJDNo.l0-044 .
7 The U.S. Chamber of Commerce's Projod No Prqjectinitiative is a .mnning inventory of energy projects that
have been stalled, stopped or otherwise thwarted by «Not In My Back Yard/' or "NIMBY" activism. It is important to
note that NIMBYs do not confine their opposition only to coal-fired power plants; by far the largest portion of the
nearly 400 energy p:rojects detailed on the PNP website is renewables. The U.S. Chamber is currently in the p:rocess of
developing an economic analysis of the investment and jobs foregone by"failing to move fOLWard with these energy
projects. They expect to release the final study in early 2011. I urge you to review this information when complete and
take it under consideration when addressing some of the above stated issues.
4
under. For example: Section 317 of the Clean Air Act requires economic impact assessments
for most major rules; and Section 321 of that same law, requires the Administrator to make a
continuing evaluation of potential loss or shifts of employment (including plant closures) that
may result from one of EPA's regulations. EPA has confinl1ed to Congress that it refuses to do a
Section 321 jobs analysis for any of its green110use gas-related regulations, nor does it appear to
have done similar assessments for any of its other rules. Without EPA's insight into the real-
world impact of its policies, other groups have had to pick up the slack.
According to the Manufacturers' Alliance estimates, EPA's reconsideration of the

National Ambient Air Quality Standards for Ground-Level Ozone could cost as much as $1.013
trillion annually between 2020 and 2030 (a 5.4% net reduction in GDP) and could sacrifice 7.3
million jobs by 2020 (4.3% ofprojected labor force). EPA's "Boiler MACT" industrial
emissions standards for boilers, which EPA admitted were "simply too tight to be able to be
achievable," could reduce GDP by as much as $1.2 trillion. Moreover, evelY $1 billion spent on
compliance costs could put 16,000 jobs at risk, according to a study prepared for the Council of
Industrial Boiler Owners by the research finn IHS Global Insight.
The North American Electric Reliability Corporation (NERC) found that EPA's suite of
rules on electric power generators could force up to 19 percent of our nation's fossil-fired
electric generation to retire in the next ten years. The impact on jobs resulting from such a large-
scale retirement of capacity could be colossal. However, EPA must complete more economic and
jobs impact analysis in order to be sme. We have data for the handful of rules mentioned above.
But we do not have it, nor does EPA appear ready to provide it, for dozens of other major rules
that are plaguing NBCC's members and preventing long-tenn investment.
I emphatically recommend requiring EPA to conduct the statut01~ly-required analyses for

all major regulations. Moreover, I urge the preemption of all EPA regulations issued in 2009 and
201 0 that did not adequately comply with Sections 317 and 321 of the Clean Air Act.
Thank you once again for yom request for information on existing and proposed
regulations that have negatively impacted job growth and the economy. The NBCC looks
forward to your leadership of the Oversight and Government Reform Committee, and stands
ready to work with you on these issues.
Sincerely,
HARRY C. ALFORD
Presiden1JCEO
Enclosme
5
CONTENTS
I. INTRODUCTION 1
II. THE EPA CO 2 ENDANGERMENT FINDING 2
III. STUDIES OF THE IMPACTS OF CARBON REGULATION ON THE ECONOMY
AND JOBS 6
IliA Recent Studies of the Impact of Waxman-Markey 6
III.B. Recent Studies of the Impact of Climate Change Legislation 25
III.C. U.S. Energy Information Administration Reports 31
IV. IMPACTS OF CO 2 REGULATION ON THE NATIONAL ECONOMY 40
IVA Summary Results of Studies 40
IV.B. Impacts on GOP, Jobs, and Incomes 43
IV.C. Impacts on Energy Expenditures 45
V. STATE IMPACTS 47
VA Impacts of CO2 Restrictions on Individual States 47
V.B. State Concentrations of the Black and Hispanic Populations 53
V.C. Impacts on States Where Black and Hispanic PopUlations are Concentrated 54
VI. POPULATION AND DEMOGRAPHIC TRENDS 56
VIA Definitions of Race and Ethnicity 56
VI.B. Black and Hispanic Populations 56
VI.C. State Black and Hispanic Population Trends 58
VII. IMPACTS OF THE EPA ENDANGERMENT FINDING ON LOW-INCOME
PERSONS, AFRICAN AMERICANS, AND HISPANICS 63
VilA Economic Status of African Americans and Hispanics 63
VIIA1. Income, Earnings, and Wealth :.; 63
VII.A.2. The Economic Vulnerability of African Americans and Hispanics 64
VIIA3. Implications for African Americans and Hispanics 66
VIIA4. Implications for Energy Burdens on Low Income Groups and Minorities 67
VII.B. Effects on Low-Income Groups, the Elderly, African Americans, and Hispanics 72
VII.B.1. Impacts on Cost of Living and Poverty Rates 72
VII.B.2. Impacts on Incomes 76
VII.B.3. Impacts on Jobs and Unemployment 77
VII.B.4. Impacts on Basic Expenditures and Discretionary Income 81
VII.B.5. Impacts of Higher Energy Burdens: Increased Energy Poverty 82
VII.B.6. Impacts on Minority Small Businesses 84
VII.B.7. Impacts on the Federal Debt Burden 86
VII.C. Impacts on African Americans and Hispanics by State 87
VIJ.C.1. Disparate Impacts on States 87
VII.C.2. Black and Hispanic Incomes 88
VII.C.3. Black and Hispanic Jobs 89
VII.C.4. Black and Hispanic Energy Burdens 90
VIII .. FINDINGS AND 1MPLICAnONS 92

MANAGEMENT INFORMATION SERVICES, INC 100
ii
EXECUTIVE SUMMARY
On December 7,2009 the U.S. Environmental Protection Agency issued its long-
anticipated "Endangerment Finding," which was a prerequisite to finalizing EPA's
proposed greenhouse gas emission standards. Implementation of this Finding could
affect millions of entities and lead to the most comprehensive, restrictive and intrusive
environmental regulations in U.S. history. A major impact of this Finding would be
restrictions on the availability and increases in the prices of fossil fuels, especially coal.
The economic impacts of the Finding in terms of GOP, incomes, industrial activity, jobs
and other indicators likely would be severe. Due to their economic vulnerability, low-
income groups, African Americans, and Hispanics and senior citizens would be
seriously and disproportionately impacted ..
This report analyzes the likely economic, employment, and· energy market
impacts of the EPA Finding with special emphasis on the impacts on low-income
groups, the elderly, African Americans, and Hispanics. No comprehensive analyses of .
the economic impacts of the EPA Finding have thus far been conducted, and here we
used the results of various studies conducted in recent years on the impacts of different
C02 restriction programs and proposed legislation. .
Major Finding
Our major finding is that the C02 restrictions implied in the EPA regulation would
have serious economic, employment, and energy market impacts at the national level
(Figures EX-1 and EX-2) and for all states, and that the impacts on low-income groups,
the elderly, African Americans, and Hispanics would be especially severe. We
estimated that implementation of the EPA Finding would:
• Significantly reduce U.S. GOP every year over the next two
decades, and by 2030 GOP would be about $500 billion less than
in the reference case - which assumed no EPA carbon restrictions.
• Significantly reduce U.S. employment over the next two decades,
and by 2030 would result in the loss of 2.5 million jobs
• Significantly reduce U.S. household incomes over the next two
decades, and by 2030 average household income would be
reduced by about $1 ,200 annually
In addition, the EPA carbon restrictions would greatly increase U.S. energy costs,
and by 2030 these increases (above the reference case) could total:
• 50 percent for gasoline prices

• 50 percent for residential electricity prices
.• 75 percent for industrial electricity prices
• 75 percent for residential natural gas prices
• 100 percent for industrial natural gas prices
iii
• 40 percent for jet fuel prices
• 40 percent for diesel prices
• 600 percent for electric utility coal prices
Figure EX-1
Impact of the EPA Finding on U.S. GOP
0.00%
-0.50%
-1.00% +_. J.!~:;;~-
-1.50% +-------------,-01,,;-·--
-----------
-2.50% . - - - . - - - - - - - - - - - ~ - _ _ c
U NBCC IIACCF·NAM Heritage

Source: Management Information Services, Inc., 2010.
Figure EX-2
Likely Impact of the EPA Finding on U.S. Jobs
o.
-500
Cil
"~". ·1,000'
o
J:
:t:. -1,500 - -
JJo
.., -2,000
-2,500
UNBCC uACCF·NAM "Heritage

The EPA regulation will impact low income groups, the elderly, and minorities
disproportionately, both because they have lower incomes to begin with, but also
because they have to spend proportionately more of their incomes on energy, and rising
energy costs inflict great harm on minority families. Lower-income families are forced to
allocate larger shares of the family budget for energy expenditures, and minority
families are significantly more likely to be found among the lower-income brackets. This
disparity between racial groups means that rising energy costs have a
disproportionately negative effect on the ability of minority families to acquire other
iv
necessities such as food, housing, childcare, or healthcare. Essentially, the EPA
Finding will have the effect of a discriminatory tax based on race.
Demographic Changes
Figure EX-3 indicates that the growth in the Hispanic population is the salient
U.S. demographic development:
• In 1970, less than five percent of the U.S. population was Hispanic.
• In 2000, about 13 percent of the U.S. population was Hispanic.
• In 2030, about 20 percent of the U.S. population will be Hispanic.
• In 2050, about 25 percent of the U.S. population will be Hispanic.
• In recent years, about one of every two persons added to the U.S.
population was Hispanic.
Figure EX·3
Percent His anic of the Total U.S. Po
Source: U.S. Census Bureau, 2010.
Hispanics have displaced African Americans as the largest U.S. minority group,
and their numerical dominance will continue to increase. The portion of the population
that is non-Hispanic White declines from 80 percent in 1980 to about 50 percent in
2050. The portion of the U.S. that is Black will remain at about 13 percent over the next
several decades.
Impact on Poverty Rates
Black and Hispanic workers -- and their families - will likely be adversely affected
threefold if the EPA Endangerment Finding is implemented: Their incomes will be
substantially less than they would without the regulation, their rates of unemployment
will increase substantially, and it will take those who are out of work much longer to find
another job. These impacts on earnings and employment will increase the rates of
v
poverty among African Americans and Hispanics, and we estimate that one of the
impacts of implementing the EPA Finding will be to, by 2025 (Figure EX-4):
• Increase the poverty rate for Hispanics from 23 percent to about 28

percent. This represents an increase in Hispanic poverty of nearly
22 percent.
• Increase the poverty rate for African Americans from 24 percent to
about 30 percent. This represents an increase in Black poverty of
20 percent.
Figure EX-4
Increases in 2025 Poverty Rates Caused
by the EPA Endangerment Finding
30%
25%-1----
20%
15%
5%
0% .
Black Hispanic
.. Reference '" EPA Finding

Source: Managementlnformation Services, Inc., 2010.
This must be considered one of the more troubling potential impacts of the EPA
Finding. An unintended result of the EPA regulation will likely be to force millions of
African Americans and Hispanics below the poverty line -- many of whom have only
recently managed to work their way out of poverty.
In addition, the EPA CO 2 restrictions, by increasing the costs of energy and

energy-intensive building materials, will increase the costs of housing. This will
seriously affect African Americans and Hispanics because they have higher housing
costs and a lower rate of home ownership than Whites:
• Only about ten percent of Whites pay 50 percent or more of their

income in housing costs; the comparable percentage for African
Americans and Hispanics is about 20 percent.
• Whereas 25 percent of Whites pay 30 percent or more of their
income in housing costs, the comparable percent for African
Americans is 40 percent, and for Hispanics it is 45 percent.
vi
Impact on Incomes
Consumers and households will ultimately bear the added costs that will result
from the EPA Endangerment Finding, and implementation of the Finding will reduce
Black and Hispanic household incomes by increasing amounts each year (Figure EX-5):
• In 2015, Black median household income will decrease about $550

compared to the reference case (which assumes that the EPA
Finding is not implemented), and Hispanic median household
income will decrease $630 compared to the reference case.
• In 2025, Black median household income will be nearly $600 less
than under the reference case, and Hispanic median household
income will be about $660 less than under the reference case.
• In 2035, Black median household income will be $700 less than
under the reference case, and Hispanic median household income
will be $820 less.
• The cumulative loss in Black median household income over the
period 2012 - 2035 will exceed $13,000.
• The cumulative loss in Hispanic median household income over the
Figure EX-5
Losses in Black and Hispanic Median Household
Incomes Caused by the EPA Endangerment Finding
$0
-$100
-$200
l:l -$300
o
.,
--' -$400-
E -$500
o
<.l
.5 -$600
-$700 +------------
-$800
-$900 - ' - - - - - - - - - - - - - - - - - -
II Black u Hispanic
'-;S""o-u-rc-e-:~M;-a-na-g-e-m-e-nt:-Cln'formation Service-s,"'ln-c-.,"'2"'0C:-
10;::-.------1
Impact on Jobs
The most salient characteristic of the employment status of African Americans

and Hispanics is the fact that their unemployment rates have consistently been much
higher than average and than those for Whites. African Americans and Hispanics
are also at a disadvantage in the labor force when they are employed, for they tend to
vii
be disproportionably concentrated in lower paid jobs, Nationwide, implementation of the
EPA Finding would result in the loss of an increasingly large number of Black and
. Hispanic jobs (Figure EX-6):
• In 2015, 180,000 Black jobs would be' lost and nearly 250,000
Hispanic jobs would be lost.
• In 2025, more than 300,000 Black jobs would be lost and nearly
400,000 Hispanic jobs would be lost.
• In 2030, nearly 390,000 Black jobs would be lost and nearly
Figure EX·6
Black and Hispanic Job Losses
.---__C.=.a::.:lJ!ied by the EPA Endangerment Finding
o
~50
_ -100 .
",.
-g -150
III -200
::I
o -250 -------~'---
.c
:t:. -300 +---------
2lo -350
-, -400 - f - - - - - - - - - - - - - - - - - ' = ' - - - -
-450 ..- - - - - - - - - - - - - - - -
-500
III Black '" Hispanic

'::-----;--;----- ,
The job losses increase every year, and the cumulative losses for African
Americans and Hispanics will grow rapidly over the next two decades if the EPA
regulation is enacted:
• By 2020, cumulative job losses for African Americans will total

nearly 1.7 million.
about 4.9 million.
• By 2020, cumulative job losses for Hispanics will total 2.4 million.
• By 2030, cumulative job losses for Hispanics will total more than
6.5 million.
Impact on Basic Expenditures and Discretionary Income
African Americans and Hispanics have, on average, significantly lower incomes

than Whites, and have to spend proportionately larger shares of their incomes on basic
necessities such as food, housing, clothing, and utilities. Implementing the EPA Finding
viii
will significantly increase the costs of all fossil fuels and, since energy is a basic
component in the production of all commodities, the prices of all goods will increase as
the energy price increases work their way through the economy. Thus, the EPA Finding
will likely have a doubly negative impact on the living standards of African Americans
and Hispanics:
• First, implementing the Finding will decrease Black and Hispanic

incomes below where they would be in the absence of the
regulation.
• Second, the Finding will increase the costs of the basic goods upon
which African Americans and Hispanics must spend their reduced
incomes.
In the face of reduced incomes and rising prices, the trade-offs that African
Americans and Hispanics will face involve reallocating spending between food, clothing,
housing, and heat. For example, proportionately:
• African Americans spend 20 percent more of their income on food,

ten percent more on housing, ·40 percent more on clothing, and 50
percent more on utilities than do Whites.
• Hispanics spend 90 percent more of their income on food, five
percent more on housing, 40 percent more on clothing, and 10
Implementing the EPA Finding will exacerbate this situation by forcing African
Americans and Hispanics to spend an even more disproportionate share of their
incomes -- which will have been reduced due to the effects of the CO 2 restrictions -- on
basic necessities.
Finally, the cumulative impact of increased unemployment, reduced incomes,

and increased prices for housing, basic necessities, energy, and utilities resulting from
the EPA Finding will be to further reduce Black and Hispanic discretionary incomes.
Discretionary income is the money that remains for spending or saving after people pay
their taxes and purchase necessities. It is an important concept both because of the
financial flexibility it gives individuals and because many businesses depend on
discretionary spending for sales and profits. Implementing the EPA Finding will reduce
the average discretionary incomes of both African Americans and Hispanics.
Increased Energy Poverty
One of the more serious, but less recognized effects of implementing the EPA
Finding will be to significantly increase the energy burdens for the elderly, African
Americans, and Hispanics and increase the numbers of African Americans and
Hispanics suffering from "energy poverty." For tens of millions of low-income
households, higher energy prices will intensify the difficulty of meeting the costs of basic
human needs, while increasing energy burdens that are already excessive. At the
ix
same time, the EPA regulation will threaten low-income access to vital energy and utility
services, thereby endangering health and safety while creating additional barriers to
meaningful low-income participation in the economy.
For the low-income elderly who are particularly susceptible to weather-related·
illness such as hypothermia, a high energy burden can represent a life-threatening
challenge. ' Implementation of the EPA Finding would place many elderly households at
serious risk by forcing them to heat and cool their homes at levels that are inadequate
for maintenance of health. The price increases resulting from carbon restrictions would
be highly regressive -- they would place a relatively greater burden on lower-income
households than on higher-income ones. In addition to health risks, excessive energy
burdens cause a variety of difficulties for low-income households, and "Inability to pay
utilities is second only to inability to pay rent as a reason for homelessness."
A major negative effect of promulgating the EPA regulation would be to

significantly increase the energy burdens for African Americans and Hispanics and to
force large numbers of both groups into energy poverty. Implementing the EPA Finding
would (Figure EX-7):
• In 2020, increase the energy burden of African Americans by 14

percent and Hispanics by 16 percent
• In 2030, increase the energy burden of African Americans by nearly
one-third and Hispanics by more than 35 percent
Figure EX-7
Increases in Black and Hispanic Energy Burdens
Re~ulting From the EP~~angermentFinding
Hispanic
112020 .. 2030
'The energy burden is defined as the percentage of gross annual household income that is used to pay
annual residential energy bills.
x
Impacts on Minority Small Businesses
Small businesses will face higher costs for energy and other products as a result
of the EPA Finding, and the impact on Black and Hispanic small businesses will be
especially severe. Black- and Hispanic-owned businesses represent a
disproportionately small share of total businesses, ten(j to be smaller and less well
capitalized than White-owned businesses, and are much more vulnerable to the
economic dislocations likely to result from the EPA CO 2 restrictions. Thus, the potential
impact of the EPA regulation on Black arid Hispanic Businesses is significant.
Impacts on the Federal Debt Burden
As the economy adjusts to a reduced GOP the negative economic impacts

accumulate, and the national debt will be affected. We estimate that the EPA regulation
could increase the federal debt by nearly 30 percent by 2035 - over and above what it
would be without the regulation (Figure EX-8). This represents an additional $33,000
per person, or more than $130,000 for a family of four. Since Black and Hispanic
incomes are well below the U.S. average, the increased burden of this incremental debt
would be 25 percent higher for Hispanic families and about 33 percent higher for
Hispanic families.
Figure EX-8
Increased Federal Debt Burden For a Family of Four
Resulting From the EPA Endangerment Finding
$140
I!? $120
..!l!
"0 $100
.,.C
0
0 $80
N
Ul
'".c
$60
Ul $40
-,----,1=
:>
0
.c $20
I-
$0
2015 2020 2025 2030 2035
Source: Heritage Foundation and Management Information Services, Inc., 2010 .
.I mpacts on African Americans and Hispanics by State
The impact of implementing the EPA Finding on the U.S. economy, and on low-
income groups, African Americans, and Hispanics, will be severe.' The regulation will
cause higher energy costs to spread throughoutthe economy as producers try to cover
their higher production costs by raising their product prices, and these impacts will be
felt to varying degrees in different states. For example, because virtually all businesses
rely on electricity to produce and sell goods and services, the economic impacts of coal-
xi
ba:;;ed energy extend far beyond the generation and sale of electricity. The availability
of low-cost electricity produces powerful ripple effects that benefit state economies as a
whole, but implementation of the EPA regulation would greatly increase electricity prices
- much more in some states than in others. For example, consumers in the Midwest
and the Southeast will literally face double the impacts of carbon caps than consumers
elsewhere in the country (Figure EX-g).
Figure EX-9
Relative CO 2 Emissions Per State
Metric Tons of Eml8elolls per $1 Million

In State Ecollomlc Actlvlly
IB Least: 48 ~ 500
II Most: ,1301-2305
Source: U.S. Environmental Protection Agency, 2009.
Since the proposed CO 2 restrictions would require continuing and increasingly

severe reductions in the use of fossil energy to produce electricity in the states and
cause large energy price increases, if the regulation is implemented all states will suffer
substantial and increasingly severe economic and jobs impacts:
• Residents of all states will face increased costs for energy, utilities,
and for other goods and services and will experience increased
costs of living, beginning in 2012.
• Energy and electricity prices in each state would increase
substantially, but to different degrees.
• The growth rates of state wages and incomes would be negatively
affected over the next two decades, and by 2030 state per capita
personal incomes would be significantly lower than in the absence
of the EPA regulation.
xii
• Millions of jobs would be lost in the states, employment would be
lower, and unemployment higher.
• Industries and firms will relocate among states, thus causing a
further loss of jobs in many states.
• New firms will hesitate to locate in some states, thus causing a
reduction in the number of new jobs created.
• The combination of reduced economic activity in the states,
decreased personal incomes for states' residents, and increased
unemployment will strain state and local government budgets and
result in reduced public services and increased taxes.
African Americans and Hispanics are disproportionately located in certain states,

and their population concentration in these states will increase over time. We estimated
the impacts of the EPA Finding on incomes in the seven states with the highest
concentrations of African Americans and Hispanics: Arizona, California, Florida,
Georgia, Illinois, New York, and Texas (Figure EX-10). In all states (except Georgia),
the impacts on Hispanic incomes exceed the impacts on Black incomes, since there are
more Hispanics than African Americans residing in these states. Further, the growth
rates of the Hispanic population exceed those of African Americans in all of these
states.
Figure EX-10
Average Annual Impact in Selected States, 2012-2035, of the EPA
Endan erment Finding on E!.lack and Hispanic Personal Incomes
$0
.
",
M'.
I!!
.l!!
"0 -$3.000
C
~"
-$4,000
:! -$5,000 .
-$6,000
.,
-$7,000 - ' - - - - -
II Black fJ Hispanic
The impacts vary widely among the states. The greatest loss of income will be
experienced by Hispanics in California, since this state has, by far,the largest number
of Hispanic residents and the most rapidly growing Hispanic population.
We estimated the average annual impacts in the seven states, 2012-2035, of the
EPA Finding on Black and Hispanic jobs (Figure EX-11). In all states (except for
xiii
Georgia), Hispanic job losses exceed Black job losses, since there are more Hispanics
than African Americans residing in these states.
Figure EX·11
Average Annual Impact in Selected States, 2012.2035, of the EPA
Endangerment Finding on !:lJack and Hispanic Jobs
o
~'I£
-10,000 -<:>"-'
. ~ ,to
-20,000 _-,V,,--_
III
..,-g -30,000 +---

-40,000 ; - - - -
-50,000 . / - - - - -
-60,000 .L-. _
III Black mHispanic

The greatest job losses will be experienced by Hispanics in California, since this
state has, by far, the largest number of Hispanic residents. Nevertheless, the job losses
are substantial in every state. For example, every year 2012 - 2035, average Hispanic
job losses will total:
• Nearly 70,000 in California

• Nearly 40,000 in Texas
• Nearly 20,000 in Florida
• Nearly 13,000 in New York
Every year 2012 - 2035, average Black job losses will total:
• More than 13,000 in Texas

• More than 13,000 in Florida
• Nearly 13,000 in Georgia
While Hispanic jobs losses exceed Black job losses in all of the states except
Georgia, in some states job losses for the two groups are about the same - for
example, in New York and in Illinois.
We estimated the increases in Hispanic and Black energy burdens in the states
in 2020 and 2030 resulting from the EPA Endangerment Finding and found that
(Figures EX-12 and EX-13):
xiv
• The energy burdens for both African Americans and Hispanics
increase in each year.
• For each group, the increases in energy burdens in 2030 ar,e much
larger than those in 2020.
• For each group, the increases in energy burdens are the largest in
Texas, Florida, Georgia, and Arizona.
• In some states, such as Florida, Georgia, and Texas, the increased
energy burden is larger for African Americans than for Hispanics.
• In some other states, such as Arizona, California, and Illinois, the
increased energy burden is larger for Hispanics than for African
Americans.
F,gure EX·12
Increase in Hispanic Energy Burdens in Selected States
Resultin From the EP~dangerment F.!!!!!!ng
120%
100%
80% --------
60% +-------
20%
0%
II 2020 1112030
Source: Management Information Services, Inc., 2010,
Conservative Estimates
The results derived here should be viewed as conservative and as indicating the
minimal negative effects that may be expected. The reason is that the C02 restriction
programs and legislation that have been analyzed contain numerous subsidy, rebate,
compensation, and incentive provisions to lessen the burden of the CO 2 restrictions - at
least in the short run. The EPA Finding contains no such provisions, and EPA is not
permitted to consider economic impacts in developing regulations. Thus, the impacts of
the EPA Finding on the economy and labor market are likely to be even more severe
than those estimated here.
xv
Figure EX-13
Increase in Black Energy Burdens in Selected States
160% , - - - - . , . . . . - - - - - - - - - - - - - - - -
140% +-------------------
120% +-------------------
100% +-......------
80% +-------
60% +-------
40% -
20%
0%
"2020 "2030
xvi
I. INTRODUCTION
anticipated "Endangerment Finding," which was a prerequisite to finalizing EPA's
proposed greenhouse gas emission standards. Implementation of this Finding could
affect millions of entities and lead to the most comprehensive, restrictive, and intrusive
environmental regulations in U.S. history. A major impact of this Finding would be
restrictions on the availability and increases in the prices of fossil fuels, especially coal.
The economic impacts of the Finding in terms of GOP, inComes, industrial activity, jobs,
and other indicators would likely be severe. Due to their economic vulnerability, the
impacts on low-income groups, African Americans, and Hispanics would be
disproportionate and especially serious.
Accordingly, this report analyzes the likely economic, employment, and energy
market impacts of the EPA Finding with special emphasis on the impacts on low-income
groups, the elderly, African Americans, and Hispanics. No comprehensive analyses of
the economic impacts of the EPA Finding have thus far been conducted, and here we
use the results of various studies conducted in recent years on the impacts of different
proposed CO 2 restriction programs and legislation. The results derived here should be
viewed as conservative, indicating the minimal negative effects that may be expected.
The reason is that the CO 2 restriction programs and legislation that have been analyzed
contain numerous subsidy, rebate, and incentive provisions to lessen the burden of the
C02 restrictions - at least in the short run. The EPA Finding contains no such
provisions, and EPA is not permitted to consider economic impacts in developing
regulations. Thus, the impacts of the EPA Finding on the economy and labor market
are likely to be even more severe than those estimated here.
The report is organized as follows:
• Chapter II discusses the EPA Endangerment Finding.

• Chapter III reviews recent studies of the economic impacts of CO 2
restrictions upon which the estimates derived here are based.
• Chapter IV discusses the impacts of CO 2 regulation on the national
economy and jobs.
• Chapter V discusses state impacts.
• Chapter VI analyzes Black and Hispanic population and
demographic trends at the national and state levels.
• Chapter VII analyzes the likely impacts of the EPA endangerment
finding on low-income persons, African Americans, and Hispanics.
• Chapter VIII discusses the findings and implications derived here.
1
II. THE EPA CO2 ENDANGERMENT FINDING
anticipated "Endangerment Finding.,,2 EPA Administrator Lisa P. Jackson stated that
"This finding confirms that greenhouse gas pollution is a serious problem now and for
future generations. In both magnitude and probability, climate change is an enormous
problem. The greenhouse gases that are responsible for it endanger public health and
welfare within the meaning of the Clean Air Act (CM).,,3
On December 7, the EPA Administrator signed two distinct findings regarding

greenhouse gases under section 202(a) of the CM:
• Endangerment Finding:' The Administrator finds that the current

and projected concentrations of the six key greenhouse gases
(GHGs) pose a potential threat: Carbon dioxide, methane, nitrous
oxide, hydrofluorocarbons, perfluorocarbons, and sulfur'
hexafluoride.
• Cause or Contribute Finding: The Administrator finds that the
combined emissions of these GHGs from new motor vehicles and
new motor vehicle engines contribute to the greenhouse gas
pollution which threatens public health and welfare.
These findings do not themselves impose any requirements on industry or other

entities. However, this action was a prerequisite to finalizing EPA's proposed
greenhouse gas emission standards for light-duty vehicles, which EPA proposed in a
joint proposal including the Department of Transportation's proposed corporate average
fuel efficiency (CAFE) standards on September 15, 2009. 4 .
EPA contends that climate change may lead to higher concentrations of ground-
level ozone and that additional impacts of climate change include increased drought,
more heavy downpours and flooding, more frequent and intense heat waves and
wildfires, greater sea level rise, more intense storms, and harm to water resources,
agriculture, wildlife, and ecosystems. The agency also stated that that climate change
has serious national security implications. Further, EPA stated that climate change
would have a disproportionate impact on the health of certain segments of the
population, such as the poor, the very young, the elderly, those already in poor health,
the disabled, those living alone and/or indigenous populations dependent on one or a
few resources.
2www.epa.gov/climatechangelendangermenl.html. .
'''Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the
Clean Air Act," Environmental Protection Agency press release, December 7, 2009.
4 U.S. Environmental Protection Agency, "EPA and NHTSA Propose Historic National Program to Reduce
Greenhouse Gases and Improve Fuel Economy for Cars and Trucks," EPA-420-F-09-047a, September
2009.
2
The Finding has entered the public comment period, which is the next step in the
deliberative process EPA must undertake before issuing final findings. The Finding did
not include any proposed regulations, and prior to taking any steps to reduce GHGs
under the CAA EPA must conduct an appropriate process and consider stakeholder
input. 5
·The Finding was long-anticipated because of an April 2007 Supreme Court ruling
(Massachusetts v. EPA) which found that Congress authorized EPA to regulate GHGs
for climate change purposes when it enacted the 1970 CAA. That decision all but
ensured that EPA would issue an Endangerment Finding for GHGs which, in turn, would
compel EPA under the CAA to establish first-ever GHG emission standards for new
motor vehicles. The timeline for the Finding was:
• On April 2, 2007, in Massachusetts v. EPA, the Supreme Court

found that GHGs are air pollutants covered by the CM. The Court
held that the Administrator must determine whether or not
emissions of GHGs from new motor vehicles cause or contribute to
air pollution which may reasonably be anticipated to endanger
public health or welfare, or whether the science is too uncertain to
make a reasoned decision. In making these decisions, the
Administrator is required to follow the language of section 202(a) of
the Clean Air Act. The Supreme Court decision resulted from a
petition for rulemaking under section 202(a) filed by more than a
dozen environmental, renewable energy, and other organizations.
• On April 17, 2009, the EPA Administrator signed proposed
endangerment and cause or contribute findings for GHGs under
Section 202(a) of the Clean Air Act. EPA held a 60-day public
comment period, which ended June 23, 2009, and received over
380,000 public comments. These included both written comments
as well as testimony at two public hearings in Arlington, Virginia
and Seattle, Washington. EPA reviewed, considered, and
incorporated public comments and then issued its final findings.
• The "findings were signed by the Administrator on December 7,
2009.
• On December 15, 2009, the final findings were published in the
Federal Register.
• The final rule was effective January 14, 2010.
However, there is a Catch 22 involved: Once EPA adopts the GHG motor
vehicle standards, C02 automatically becomes a pollutant "subject to regulation" under
the CM Prevention of Significant Deterioration (PSD) pre-construction permitting
program and the Title V operating permits program. 6 Under the CM, firms must obtain
a PSD permit in order to construct or modify a "major emitting facility," and a permit to
'''The EPA Endangerment Finding," Energy Bulletin, December 9, 2009.

6See Roger H. Bezdek, "Despite Legislative Successes, Increased Federai Reguiation Threatens U.S. Oil
and Gas," World 011, February, 2010, pp. 41-44.
3
operate such a facility. A facility is major under PSD if it is in one of 28 categories and
has a potential to emit 100 tons per year (TPY) of a regulated pollutant, or 250 TPY if it
is any other type of establishment. Millions of· currently unregulated buildings and
facilities -- office buildings, apartment buildings, commercial and retail stores, shopping
malls, heated agricultural facilities, small manufacturing firms, commercial kitchens, etc.
-- emit enough CO 2 to meet these thresholds.
EPA estimates that if PSD were to be applied as written to CO 2 sources, the

number of PSD permit applications per year would increase from 300 to more than
41,000, and the number of Title V permit applications would increase from 15,000 to 6.1
million. This is clearly neither technically nor politically feasible, and EPA has proposed
a Tailoring Rule to limit the number of permits required by suspending the PSD and Title
V requirements for any source emitting less than 25,000 TPY of C02-equivalent GHGs.
However, it is unclear whether EPA's Tailoring Rule will survive jUdicial challenge
because it conflicts with statutory language. Further, to show that EPA is not amending
the CAA, the Agency contends in the Tailoring Rule that its goal is to apply PSD and
Title V to smaller and smaller CO 2 sources over time, eventually including sources
emitting 250 TPY and 100 TPY. EPA proposes to spend five years developing
"streamlined" permitting procedures for smaller sources, but the legality of such a plan
is questionable.
Further, the Tailoring Rule itself is subject to legal uncertainty because of the
clarity in which the CAA specifies the 250-ton threshold, seeming to leave little room for·
the EPA to raise the threshold to 25,000 tons arbitrarily.? While that issue appears likely
to play out in court, many smaller emitters are faced with considerable uncertainty as to
whether they will actually be temporarily protected under the tailoring rule. If not, as
noted, EPA estimates that more than 6 million new sources could be subject to
regulation, including 1.4 million commercial buildings, and at least one million mid-sized
to large commercial buildings emit enough C02 per year to become EPA regulated
stationary sources. 8 For example, the threshold would be reached by one-fifth of all
food services, one-third of those in health care, half of those in the lodging industry,
even 10 percent of buildings used for religious worship.9
Most important, the Tailoring Rule, if upheld by courts, could result in the
imposition of national ambient air quality standards (NAAQS) for C02 that could
seriously harm the U.S. economy.1 Q The endangerment finding asserts that current
atmospheric CO 2 concentrations endanger public health and welfare, and a NAAQS. for
C02 would thus have to be set below current levels. Environmental organizations have
already petitioned EPA to establish NAAQS for CO 2 set at 350 parts per million (PPM).
7U.S. Environmental Protection Agency, "Prevention of Significant Deterioration and Title V Greenhouse
Gas Tailoring Rule," October, 27, 2009.
6 lbid.
9 M . Portia, E. Mills, and Mark P. Mills, "A Regulatory Burden: The Compliance Dimension of Regulating
CO2 as a Pollutant," U.S. Chamber of Commerce, September 2008. .
10Ben Lieberman, "Small Business Impact of the EPA Endangerment Finding," Heritage Foundation,
January 20, 2010.
4
The present atmospheric CO 2 level is about 390 PPM. Even if the entire world et
the emissions reduction target of the Waxman-Markey bill -- 83% below 2005 levels by
2050 -- this would only "stabilize" C02 concentrations at about 450 PPM. Not even a
worldwide depression lasting decades would be sufficient to reduce CO 2 concentrations
to 350 PPM. Nevertheless, under established legal interpretation, EPA is prohibited
from considering compliance costs when establishing NMOS. Thus, according to
EPA, the endangerment test cannot legally weigh the economic impacts of the GHG
regulations that wHi be promulgated pursuant to this finding. 11 . .
Industry groups have also initiated legal challenges, and their prospects may be
favorable. EPA derives its authority to regulate pollutants from the CM, but to USe that
law to regulate GHGs the agency must prove those gases are harmful to human health.
That is, it must prove that a slightly warmer climate will cause Americans injury or death.
Given that many climate scientists contend that a warmer earth could provide net
benefits to the U.S., this may be difficult. Further, the leaked emails from the Climatic
Research UniUn England ("Climategate") are providing rich fodder for those who want
to challenge the science underlying the theory of manmade global warming.
Nevertheless, while Congress continues to debate the merits of climate change

legislation and legal challenges to the Finding are filed, EPA has been steadily moving
forward with a process to regulate GHGs under the framework of the CM. As noted,
on January 14, the first major step of that process -- a final rule concluding that GHGs
endanger public health and welfare -- took effect, and with it the obligation to move
forward with what could become the most expensive and intrusive set of regulations in
U.S. history. The implementation of these rules will have a significant impact on the
economy and all segments of the population, even if the "Tailoring Rule" survives legal
challenges.
""EPA Finalizes Endangerment Finding for Greenhouse Gases:' Van Ness Feldman Law Firm,
Washington, D.C., December 9,2009.
5
III. STUDIES OF THE IMPACTS OF CARBON
REGULATION ON THE ECONOMY AND JOBS
Numerous studies of the economic and jobs impacts of GHG coritrol programs
and legislation have been conducted over the past decade. The more significant of
these are summarized below in three categories: Recent studies conducted in 2009
and 2008 of the impact of the American Clean Energy and Security Act of 2009
(ACESA) -- H.R. 2454, also known as Waxman-Markey, recent studies of the Impact of
other climate change legislation, and EIA analyses of specific climate change
legislation.
1I1.A. Recent Studies of the Impact of Waxman-Markey
American Council for Capital Formation and National Association of

Manufacturers
The American Council for Capital Formation (ACCF) and the National
Association of Manufacturers (NAM) contracted with SAIC to analyze ACESA, which is
designed to substantially reduce U.S. GHGs over the 2012·2050 period. 12 The ACCF
and NAM believe it important to fully and realistically examine the potential costs that
enactment of the Waxman-Markey bill would impose on the U.S. economy.
ACCF and NAM applied input assumptions under two scenarios (high cost and
low cost) .that assessed the sensitivity of assumptions that have proven in the past to
significantly impact the cost of limiting CO 2 emissions from energy. These input
assumptions embody judgment on the likely cost and availability of new technologies in
the early decades of a long-term effort to reduce GHGs as well as energy efficiency and
renewable electricity standards. 13
As summarized in Table 111-1, the study's findings indicate substantial and

growing impacts to consumers and the economy of meeting the increasingly stringent
emission targets through 2030 established by Waxman-Markey (W-M). The most
significant findings are summarized below.
12American Council for Capital Formation and the National Association of Manufacturers, Analysis of the
Waxman-Markey 8ii/ "The American Clean Energy and Security Act of 2009" (HR. 2454), August 2009.
This study uses the NEMS/ACCF-NAM 24 model. The ACCF-NAM analysis of the Waxman-Markey bill
used the most recent version of the EiA Annual Energy Outlook, the April AEO 2009.
13The assumptions include the availability of nuclear power technology for electric generation, the
availability of carbon capture and storage for more efficient coal and natural gas-based power generation
technologies, and the availability of wind and biomass technologies. The ACCF-NAM input assumptions
also included assumptions regarding the likely availability of domestic and international offsets -- key
factors infiuencing analysis of the cost of limiting greenhouse gas emissions.
6
Table 111-1
Economic Impact of the Waxman-Markey Bill on the U,S. Economy
157.2 lflJ.7 16,8 157.2 160.4 164.0 157.1 1602 16.14

~.01 0.33 1.79 0.08 0.52 244
0.l1li 021\ 1.1% 0.0% 0.3% UI%
$ 7,<Jn $ 8,570 $ ~8J9 $ 7.B17 $ 8,DS $ 8~61l$ 7,790 $ 8,lSI $ 8,26.1

$ 144 I ;l;5$ 471 $ 172 $ 316 S 515
1.8% 31% 5.3% 2.2% 3.7% 6.5%
17.6 $ 12.9 $ 7.5 $ 1/.0 $ 12.8 S 7.0

9.8 $ 15.7 $ 21.7 S 10.4.$' 15.8 S 222
3\% !D% 74% 38% 55% 7f1l'
1M S 187 $ 164 $ 176 $ ·IM $ 127 $ 171 $ 158 S 116

$ 12 $
6%
21 $
11%
37
2J% • 1/ I
9%
79$
15%
48
29%
$ 9M79 $ 119,009 $ 121.731 S 98,811 $ 109,670 $ 121,001 I 91\679 $ 100,445 S . 110.483

(118) (:ll1l) (730) ~50) (5641 (1,248)
-0.1% _ ·1\;% -0.6% -0.3% -0.5% -1JII\
1,148.$ 1,682 $ I,Sl8 $ 1,652 $ 1~ S 1,584 $ 1,728 S 2,13\

S . 57 $ 103 $ 313 S 104 $ 178 S 451
3!1!6 U% . 1D.6% 7.D'b 11.8% 27Jffo
$ 38. 39 $ 40 S 124 S
nI%
180.
3fil%
269 S
~5%
151$
195%
224 S
472%
345
755%
12.0 11.8 10.1 11.8 111 95 11.7 11.1 9.4

011 OJII 0.58 018 0.49 0.74
1.8% 33% ,8% 13% 4.2% 7~
Source: American Council for Capital Formation and the Nationai Association of Manufacturers, 2009.
First, U.S. economic growth slows under W-M, especially in the post 2020 period
as the free emission allowances are phased out for both energy producers and energy
consumers. In 2030, the inflation adjusted, annual GOP level is reduced by 1.8 percent
($419 billion) under the low cost scenario and by 2.4 percent ($571 billion) under the
7
high cost scenario, compared to the baseline forecast. 14 Over the entire 18 year period
(2012-2030) covered by the analysis, cumulative GOP losses are substantial, ranging
from $2.2 trillion dollars under the low cost case to $3.1 trillion under the high cost case.
The loss to federal and state budgets is large, and cumulative tax receipts will be
reduced by between $670 billion and $930 billion compared to the baseline forecast.
Second, industrial production begins to decline immediately in 2012 under W-M,

relative to the baseline forecast. In 2030, U.S. industrial output levels are reduced by
between 5.3 percent and 6.5 percent under the low and high cost scenarios. A hallmark
of economic downturns and recessions is a slowdown in the growth rate or an absolute
decline in the level of industrial output. Clearly, the negative impact on industrial output
of W-M would make it harder to keep the U.S. economy out of recession or prevent
sluggish growth insufficient to restore job growth.
Third, employment is negatively impacted, even when additional "green" jobs are
factored in. Over the 2012-2030 period, total U.S. employment averages between
420,000 and 610,000 fewer jobs each year under the low and high cost scenarios than
under the baseline forecast. By 2030, there are between 1.8 and 2.4 million fewer jobs
in the overall economy. Manufacturing employment is hard hit: In 2030 there are
between 580,000 and 740,000 fewer jobs, or between a six and seven percent
reduction in total manufacturing employment in the U.S compared to the baseline
forecast. On average, over the 2012-2030 period, the manufacturing sector absorbs 59
to 66 percent of the overall job losses caused by W-M.
Fourth, energy prices rise over the 2012-2030 period, due to the various features
of W-M, including prices for carbon permits, which gradually rise to between $123 and
$159 dollars per ton of CO2 by 2030 as well as the renewable portfolio standards, low
carbon fuel standards, and energy efficiency standards. Over the past decade, each
one percent increase in GOP in the U.S. has been accompanied by a 0.3 percent
increase in energy use, thus higher energy prices will make it harder to recover from the
current recession and to reduce the current high rate of unemployment. The
ACCF/NAM study shows that residential electricity prices are 5 to 8 percent higher by
2020, by 2030 electricity prices are between 31 to 50 percent higher. Further, by 2030
Gasoline prices are up to 20 to 26 percent higher than under the baseline forecast.
Finally, household income drops under W-M,even after accounting for rebates to
consumers mandated in the bill. In 2030, the decline in annual household income
ranges from $730 in the low cost case to about $1,250 in the high cost case. However
the impacts on household income in individual states, especially in the Midwest are
more than 40 percent higher than the national average. For example, household
income in Illinois is $1,100 lower in 2030 under the low cost case and $1,800 lower
14To put these GOP losses in perspective, in 2008 the Federal government spent $612 billion on social
security payments to retirees. Looked at another way, if GOP levels are reduced by $571 billion In 2030,
Federal and State tax receipts will be approximately $170 billion lower that year. since federal and state
governments take approximately 30 cents out of every dollar of GOP. Thus, government budgets will be
harder to meet.
8
under the high cost case. Other Midwestern states, like Michigan, Indiana, and Kansas
show a similar pattern, and income losses are much higher than the national average.
The ACCF/NAM analysis of the Waxman Markey bill thus shows that there are
significant economic costs in terms of slower growth in jobs, household income, and
GDP from meeting the bill's GHG reduction targets. The report recommends that, given
the wide recognition that without strong emission cuts in developing countries like China
and India, U.S, emission reductions would have only negligible environmental benefits,
policymakers should proceed cautiously as they develop climate change policies. In
addition, given the size of projected federal deficits and state budget receipt shortfalls,
policymakers may want to think carefully before imposing W-M bill on the already
struggling U.S. economy.
National Black Chamber of Commerce, 2009
In this report the National Black Chamber of Commerce analyzed the potential
economic impacts of ACESA. 15 The study examined key sections of the bill, particularly
those provisions related to GHG cap-and-trade, renewable energy, and offsets, and
focused on how these could affect performance of the U.S. economy.
The most important conclusion is that ACESA will have significant cost - see
Table 111-2. Therefore, the judgment about what action to take cannot be made simply
on the grounds that a cap-and-trade program will create additional jobs and stimulate
economic growth - it will not - but on whether the benefits are worth the cost. And it
needs to be recognized that the benefits of any action by the U.S. alone are limited
because of the relatively small share that the U.S. will contribute to global emissions
over the next century.
The NBCC analysis found that businesses and consumers would face higher
energy and transportation costs under ACESA, which would lead to increased costs of
other goods and services throughout the economy. As the costs of goods and services
rise, household disposable income and household consumption would fall. Wages and
returns on investment would also fall, resulting in lower productivity growth and reduced
employment opportunities. Impacts would differ across regions of the economy,
depending on how local energy costs will change, whether local industries will be
favored or harmed, and allocation formulas. It is not possible to avoid these costs
through any free distribution of carbon allowances.
Although appropriate use of revenues from an auction or carbon tax can

ameliorate impacts on some segments of the economy, the cost of bringing emissions
down to levels required by the caps cannot be avoided. It is this cost of bringing down
emissions that the NBCC analysis estimated, in terms of reductions in GDP and
household consumption. Allocations shift who bears the burden across industries,
15National Black Chamber of Commerce, Impact on the Economy of the American Clean Energy and
Security Act of 2009 (H.R.2454), report prepared by CRA International, May 2009 (updated August 2009).
9
regions, and income groups, as do decisions about how to spend or return to taxpayers
the revenues from allowance auctions.
Table 111·2
Summary of Projected Economic Impacts
(change from projected baseline)
2015 2020 2030 I 2040 2050

CO2 Allowance Price
$24 $30 $49 $80 $131
(2008$IMetric Ton)
Change in U.S. jobs
-1.5 -1.8 -2.2 -3.0 -3.6
(Millions)
Change to Average
Worker's Annual
Wages: Assumes -$250 -$350 -$510 -$850 -$1,250
Partial Wage
Adiustmeni ($2008)
Change in U.S.
Purchasing Power
-$760 -$810 -$880 -$990 -$1,070
($2008 per
Household)
Percentage Change
-0.7% -0.8% -1.0% -1.3% -1.5%
in U.S. GDP
Percentage Change
11% 13% 17% 25% 36%
in Natural Gas Retail
($'I.30/MMBtu) ($'I.60IMMBtu) ($2.40/MMBIU) ($3.80IMMBlu) ($5.70/MMBlu)
Rates'
Percentage Change 4% 5% 7% 10% 16%
in Motor Fuel Cost (1g¢/Gallon) (24 ¢IGallon) (38¢/Gallon) (5g¢IGallon) (95¢IGallon)
Percentage Change
12% 18% 24% 41% 48%
in Electricity Retail
(1.3¢/ kWh) (2.1¢1 kWh) (2.7¢/ kWh) (4.7¢/kWh) (5.B¢1 kWh)
Rates'
.. bills Will be smaller to the extent that there are free allowance
• Percentage mcreases In utility
allocations to load-serving entities and natural gas local distribution companies andlor reduced
energy consumption.
Source: National Black Chamber of Commerce, 2009.
Just as it is impossible to eliminate the cost of reducing emissions to levels

consistent with the cap through allocations or revenue recycling, it is impossible to bring
about a net increase in labor earnings through measures that impose a net cost on the
economy. NBCC found that the cap-and-trade program would lead to increases in
spending on energy efficiency and renewable energy, and as a result that significant
numbers of people would be employed in "green jobs." However, estimates of jobs
created in these activities are incomplete if not supplemented by estimates of the
reduced employment in other industries and the decline in average salaries that would
result from higher energy costs and lower overall productivity in the economy.
10
This study found that even after accounting for green jobs, there is a substantial
and long-term net reduction in total labor earnings and employment. This is the
unintended but predictable consequence of investing to create a "green energy future."
Further, the costs estimated in this study would be much higher if it were not for the
assumed use (and availability) of international offsets authorized by the bill. Specific
economic impacts resulting from ACESA include the following: 16
• ACESA would reduce GHG emissions through decreased use of

conventional energy. As the cap progressively tightens with time,
the cost of reducing emissions becomes more expensive and as a
result, the cost of C02 allowances increases. In 2015, the cost of a
CO 2 allowance is estimated to be $245. 17 For GHG emissions the
relevant measure is metric tons of C02e. By 2030, the allowance
cost could increase to $49 per metric ton of C02 and by 2050, the
allowance cost could· reach $131 per metric ton of CO2.
• Relative to energy costs in the baseline level, retail natural gas
rates would rise by an estimated 11 percent ($1.30 per MMBtu) in
2015, by 17 percent ($2.40 per MMBtu) in 2030, and by 36 percent
($5.70 per MMBtu) in 2050. Retail electricity rates are estimated to
increase by 12 percent (1.3 cents per kWh) relative to baseline
levels in 2015, by 24 percent (2.7 cents per kWh) in 2030 and by 48
percent (5.8 cents per kWh) in 2050. 18
• After an estimated 19 cents per gallon increase in 2015, costs of
using motor fuels are estimated to increase by 7 percent (38 cents
per gallon) in 2030 and by 16 percent (95 cents per gallon) in 2050,
relative to baseline levels.
• A net reduction in U.S. employment of 1.5 million job-equivalents in
2015 increasing to 2.2 million in 2030 and 3.6 million in 2050.
These reductions are net of substantial gains in "green jobs." While
all regions of the country would be adversely impacted, Oklahoma!
Texas, the Southeast and the Midwest regions would be
disproportionately affected.
• Declines in workers' wages will become more severe with time.
The earnings of an average worker who remains employed would
be approximately $250.less by 2015, $510 less by 2030, and
$1,250 less by 2050, relative to baseline levels.
• The average American household's annual purchasing power is
estimated to decline relative to the no carbon policy case by $760
in 2015, $880 in 2030, and by $1,070 in 2050. These changes are
calculated against 2010 income levels (the median U.S. household
16AII costs in this report are expressed in terms of 2008 dollars unless otherwise specified.
17 lnthis report, when carbon or CO, allowance prices are discussed these prices are measured as dollars
f,er metric ton of CO, equivalent (CO,e).
8To the extent that utilities return the value of their free allocations under ACESA to customers through
reductions in fixed charges, actual total bills for electricity and natural gas will not rise as much as the
rates.
11
income in 2007 was approximately $50,000). They would be larger
if stated against projected future baseline income levels.
• In 2015, U.S. GOP is estimated to be 0.7 percent ($110 billion)
below the baseline level driven principally by declining
consumption. In 2030, GOP is estimated to be roughly 1.0 percent
($250 billion) below the baseline level, and in 2050, GOP is
estimated to be roughly 1.5 percent ($630 billion) below the
baseline level.
Despite the promise of green jobs, ACESA would inevitably depress total
employment from baseline levels. The bill would divert resources now used to produce
additional goods and services into the work of obtaining energy from sources that are
more costly than fossil fuels. It would, therefore, lower the sum of goods and services
produced by the economy and hence the output per unit of labor. Worker compensation
will decline as productivity falls. Although part of the decline in total compensation will
show up as a decrease in earnings per worker, many factors inhibit decreases in
average compensation. Another result of lowered productivity is likely, therefore, to
appear in the form of lower employment levels. Figure 111-1 illustrates the employment
impacts ASCEA.
Figure 111-1
Projected Changes To Employment Due To ACESA,
Assuming Partial Wage Rate Adjustments
o
:[
c
'g"J
o
~ -1,000 ...
III
~ -1,500
E -2,000 ····---1-;80G---..-
.E -2,000
jg
o
""1
.5 ·3,000 ...." , ...--.-----.- ------ - ... -- ..... ,----------------.--.... --....
'c"
0')
u
£!
-3,600
-4,000.L-------------------------..J
2015 202Q 2025 2030 2035 2040 2045 2050
Source: National Black Chamber of Commerce, 2009.
12
The actual number of jobs that would be lost depends on whether higher-paying
or lower-paying jobs are the ones that are eliminated. NBCC assumed that jobs would
be shed in equal proportions across the entire wage distribution, and reported the loss
in "average jobs." Figure 111-1 shows that in 2015, unemployment is 1.5 million higher
than in the baseline. It also shows that there would remain between about 2.5 to 3.6
million fewer average jobs in the economy far into the future relative to what would
otherwise have been possible. Because these estimated employment impacts are
based on the general equilibrium requirement that total payments to labor must fall to
the new, lower level that can be supported by the reduced overall productivity of the
entire economy, they are inclusive of all increases in "green jobs" that will be created by
ASCEA.
Heritage Foundation, 2009
An August 2009 Heritage Foundation study found that ASCEA would burden
families with thousands of dollars per year in direct and indirect energy costs, and
estimated these by state. 19 This study is discussed in Chapter V.
A May 2009 Heritage Foundation estimated the economic, energy, and job
impacts of ASCEA at the nationallevel. 2o This study forecast that by 2035 the bill will:
• Reduce aggregate gross domestic product (GOP) by $7.4 trillion

(Figure 111-2)
• Destroy 844,000 jobs on average, with peak years seeing
unemployment rise by over 1,900,000 jobs
• Raise electricity rates 90 percent after adjusting for inflation
• Raise inflation-adjusted gasoline prices by 74 percent
• Raise residential natural gas prices by 55 percent
• Raise an average family's annual energy bill by $1 ,500
• Increase inflation-adjusted federal debt by 29 percent, or $33,400
additional federal debt per person, after adjusting for inflation
Heritage found that the 2007-2009 recession diminished near-term projections

for aggregate economic activity and that as this activity declines, so does energy use.
The recession has the effect of moving the economy closer to the energy cuts needed
to meet the emissions targets. Nevertheless, the income (GOP) losses are over $150
billion immediately and average nearly $300 billion per year. As the economy recovers
and the caps tighten, the detrimental effect of cap and trade gets more and more
severe. In the worst years, GOP losses exceed $500 billion per year.
19 David Kreutzer, Karen Campbell, William W. Beach, Ben Lieberman, and Nicolas Loris, Impact of the
Waxman-Markey Climate Change Legislation on the States, Heritage Foundation, August 2009.
,oWilliam W. Beach, David Kreutzer, Karen Campbell, and Ben, Lieberman, The Economic Impact of
Waxman-Markey, Heritage Foundation, May 2009.
13
Heritage determined that Waxman-Markey will cause higher energy costs to
spread throughout the economy as producers try to cover their higher production costs
by raising their product prices. Consumers will bt;l most directly affected by rising
energy bills and, even after adjusting for inflation, gasoline prices will rise 74 percent
over the 2035 baseline price. Compared to the baseline, residential natural gas
consumers will see their inflation-adjusted price rise by 55 percent. Because of its
reliance on coal, the cost of electricity will rise by 90 percent after adjusting for inflation,
and in addition to what the price would have been anyway in 2035.
Figure 111-2
Change in GDP Due to ASCEA, 2012 -2035
(billions of constant 2009 dollars)
2012 :ID IS 2020 2025 2030 2035
o
-$100
-'$200
Source: Heritage Foundation
Cap and trade can work only when energy prices "skyrocket," and to force
consumer-energy cutbacks, the prices need to rise significantly. The Heritage analysis
showed the results of this strategy. By 2035:
• The typical family of four will see its direct energy costs rise by over
$1 ,500 per year.
• This causes consumers to reduce electricity consumption by 36
percent.
14
• Even with this cutback, the electric bill for a family of four will be
$754 more that year and $12,933 more in total from 2012 to 2035.
The higher gasoline prices will have forced households to cut consumption by 15
percent, but a family of four will still pay $596 more that year and $8,000 more between
2012 and 2035. In total, for the years 2012-2035, a family of four will see its direct
energy costs rise by over $24,000. These inflation-adjusted numbers do not include the
indirect energy costs consumers will pay as producers are forced to raise the price of
their products to reflect the higher costs of production. Nor does the $24,000 include
the higher expenditure for such things as more energy-efficient cars and appliances or
the disutility of driving smaller, less safe vehicles or the discomfort of using less heating
and cooling.
As the economy adjusts to shrinking GOP and rising energy prices, employment
decreases. On average, employment is lower by 844,000 jobs, but in some years cap
and trade reduces employment by more than 1.9 million jobs.
Heritage found that the negative economic impacts accumulate, and the national
debt is no exception. Waxman-Markey drives up the national debt 29 percent by 2035.
This is 29 percent above what it would be without the legislation and represents an
additional $33,400 per person, or more than $133,000 for a family of four. These
burdens come after adjusting for inflation and are in addition to the $450,000 per family
of federal debt that will accrue over this period even without cap and trade. Heritage
thus concluded that the impact of Waxman-Markey on the next generation of families is
thousands of dollars per year in higher energy costs, over $100,000 of additional federal
debt (above and beyond the increases already scheduled), a weaker economy, and
more unemployment.
U.S. Environmental Protection Agency, 2009
EPA noted that the ASCEA establishes an economy wide cap and trade program
and creates other incentives and standards for increasing energy efficiency and low-
carbon energy. The analysis focused on the bill's cap and trade program, the energy
efficiency provisions, and the competitiveness provisions. 21 Sensitivity analyses were
conducted for H.R. 2454 without energy efficiency provisions, H.R. 2454 without
rebates, H.R. 2454 with reference level. nuclear, and H.R. 2454 with no international
offsets. 22 EPA's major findings included:
• H.R. 2454 transforms energy production and consumption:

Increased energy efficiency and reduced energy demand mean that
"u.S. Environmental Protection Agency, Office of Atmospheric Programs, EPA Analysis of the American
Clean Energy and Security Act of 2009 HR. 2454 in the 111th Congress. June 23, 2009.
"Severai provisions outside of the cap and trade program were not modeied in this anaiysis (e.g. lighting
standards are not in the anaiysis, and the renewable electricity standard is not included in economy-wide
modeling but is modeled as a sensitivity in power sector analysis).
15
energy consumption levels that would be reached in 2015 without
the policy are not reached until 2040 with the policy.
• The share' of low- or zero-carbon primary energy (nuclear,
renewables, and CCS) rises substantially under the policy to 18
percent of primary energy by 2020, 26 percent by 2030, and 38
percent by 2050, whereas without the policy the share would
remain' steady at 14 percent. Increased energy efficiency and
reduced energy demand reduces primary energy needs by 7
percent in 2020, 10 percent in 2030, and 12 percent in 2050.
• Offsets and electric power supply and use represent the largest
sources of emissions abatement.
• Across all scenarios modeled without constraints on international
offsets, the allowance price ranges from $13 to $15/tC0 2e in 2015
and from $16 to $19/tC0 2e in 2020.
• Across all scenarios modeled that vary constraints on international
offsets, the allowance price ranges from $13 to $24/tC0 2e in 2015
and from $16 to $30/tC0 2 e in 2020.
• Offsets have a strong impact on cost containment, and the annual
limit on domestic offsets is never reached.
• While the limits on the usage of international offsets (accounting for
the extra international offsets allowed when the domestic limit is not
met) are not reached, usage of international offsets averages over
1 billion tC0 2e each year.
• Without international offsets, the allowance price would increase 89
percent relative to the core policy scenario.
• The cap and trade policy has a relatively modest impact on U.S.
consumers, assuming the bulk of revenues from the program are
returned to households. Average household consumption is
reduced by 0.03-0.08 percent in 2015, 0.10-0.11 percent in 2020,
and 0.31-0.30 percent in 2030, relative to the no policy case. 23
• Average household consumption will increase by 8-10 percent
between 2010 and 2015 and 15-19 percent between 2010 and
2020 in the H.R. 2454 scenario.
• In comparison to the baseline, the 5 and' 10 year average
household consumption growth under the policy is only 0.1
percentage points lower for 2015 and 2020.
• Average annual household consumption is estimated to decline by
$80 to $111 dollars per year relative to the no policy case, which
represents 0.1 to 0.2 percent of household consumption.
• These costs include the effects of higher energy prices, price
changes for other goods and services, impacts on wages, and
returns to capital, but do not account for the benefits of avoiding the
effects of climate change.
"Annual net present value cost per household (at a discount rate of 5 percent) averaged over 2010-2050
under the core scenario.
16
• A policy that failed to return revenues from the program to
consumers would lead to larger losses in consumption.
While this EPA analysis contained a set of scenarios that cover some of the
important uncertainties involved in modeling the economic impacts of a comprehensive
climate policy, there are still remaining uncertainties that could significantly affect the
results. EPA's major economic findings are summarized in Figure 111-3.
Figure 111-3
U.S. Consumption
(Trillion 2005 D?lIars)
$30 --_._--_.-----"-_._-----_._--------_._--------------
l1li Sen 1 - Reference ADAGE
$25 l1li Scn 2 - HR 2454 ADAGE
Scn1 - Reference IGEM
$20 l1li Scn 2 . HR 2454 IGEM
$15 +-------
$10
$5
$0
2015 2020 2030 2040 2050
Source: U.S. Environmental Protection Agency, 2009
U.S. Congressional Budget Office, 2009
csa analyzed H.R. 2454, as reported by the House Committee on Energy and
Commerce on May 21, 2009, which would create a cap-and-trade program for GHG
emissions. 24 It examined the average cost per household that would result from
implementing the GHG cap-and-trade program under H.R. 2454, as well as how that
cost would be spread among households with different levels of income. 25
Reducing emissions to the level required by the cap would be accomplished

mainly by reducing demand for carbon-based energy by increasing its price. Those
higher prices would reduce households' purchasing power, but the distribution of
emission allowances would improve households' financial situation. The net financial
impact of the program on households in different income brackets would depend in
large part on how many allowances were sold, how the free allowances were allocated,
24U.S. Congressional Budget Office, The Estimated Costs to Households From the Cap-and-Trade
Provisions of HR. 2454, June 19, 2009.
'5The analysis did not include the effects of other aspects of the bill, such as federal efforts to speed the
development of new technologies and to increase energy efficiency by specifying standards or
. subsidizing energy-saving investments.
17
and how any proceeds from selling allowances were used. The net impact would reflect
both the added costs that households experienced because of higher prices and the
share of the allowance value that they received in the form of benefit payments,
rebates, tax decreases or credits, wages, and returns on their investments.
CSO estimated that the net annual economy-wide cost of the cap-and-lrade
program in 2020 would be $22 billion -- about $175 per household. That figure includes
the cost of restructuring the production and use of energy and of payments made to
foreign entities under the program, but it does not include the economic benefits and
other benefits of the reduction in GHG emissions. Households in the lowest inCome
quintile would see an average net benefit of about $40 in 2020, while households in the
highest income quintile would see a net cost of $245. Added costs for households in
the second lowest quintile would be about $40 that year; in the middle quintile, about
$235; and in the fourth quintile, about $340. Overall net costs would average 0.2
percent of households' after-tax income.
Gross compliance costs would consist of the cost of emission allowances, the
cost of both domestic and international offset credits, and the resource costs incurred to
reduce the use offossil fuels:
• The cost of the allowances. The cost of acquiring allowances

would become a cost of doing business. In most cases, firms
required to hold the allowances would not bear that cost; rather,
they would pass it onto their customers in the form of higher prices.
• The cost of both domestic and international offset credits. Like the
cost for allowances, the cost of acquiring offset credits would be
passed on by firms to their customers in the form of higher prices.
• The resource costs associated with reducing emissions. The
resource costs would include the value of the additional resources
required to reduce emissions, by making improvements in energy
efficiency, or by changing behavior to save energy.
According to CSO's estimates, the gross cost of complying with the GHG cap-
and-trade program would be about $110 billion in 2020 (measured in terms of 2010
levels of consumption and income), or about $890 per household. Of that gross cost,
96 percent would be the cost of acquiring allowances or offset credits. The reminder
would be the resource costs associated with reducing emissions. .
Although households and governments would pay for the cost of the allowances
in the form of higher prices, those allowances would have value and would be a source
of income. The ultimate effects of the cap-and trade program on U.S. households
would depend on policymakers' decisions about how to allocate that value. Allowances
would be allocated among businesses, households, and governments, and the value of
those allowances would ultimately be conveyed to households in various ways:
18
.
• About 30 percent of the allowance value -- $28 billion -- would be

allocated in a fairly direct manner to U.S. households to
compensate them for their increased expenditures.
• Roughly 50 percent of the allowance value -- $47 billion -- would be
directed to U.S. businesses to offset their increased costs.
• About 10 percent of the allowance value would be allocated to the
federal government and to state governments.
• Finally, H.R. 2454 would direct the federal government to spend 7
percent of the allowance value overseas, funding efforts to prevent
deforestation in developing countries, to encourage the adoption of
more efficient technologies, and to assist developing countries.
Taking into the account the costs of complying with the cap ($110 billion), the
allowance value that would flow back to U.S. households ($85 billion), and the
additional transfers and costs discussed above (providing net benefits of $2.7 billion),
the net economy-wide cost of the GHG cap-and-trade program would be about $22
billion, about $175 per household -- Table 111-3. Four factors account for that net cost:
• The purchase of international offset credits ($8 billion)

• The cost of producing domestic offset credits ($3 billion)
• The resource costs associated with reducing emissions ($5 billion)
• The allowance value that would be directed overseas ($6 billion)
Each of those components represents costs that would be incurred by U.S.

households as a result of the cap-and-trade program but would not be offset by income
resulting from the value of the allowances or from additional payments (such as
increases in Social Security benefits) that would be triggered by the program.
Estimates of the average net cost to households under H.R. 2454 do not reveal the
wide range of effects. that the cap-and-trade program would have on households in
different income brackets, different sectors of the economy, and different regions of the
country. In order to provide greater insight into some of those variations, eso estimated
the effect of the GHG cap-and-trade program on the average household in each fifth
(quintile) of the population arrayed by income.
eso estimated that households in the lowest income quintile would see an
average net benefit of about $40, while households in the highest income quintile would
see a net cost of approximately $245. Households in the second lowest quintile would
see added costs of about $40 on average, those in the middle quintile would see an
increase in costs of about $235, and those in the fourth quintile would pay about an
additional $340 per year. Overall, costs for households would average 0.2 percent of
their average after-tax income.
19
Table 111-3
Total Cost and Average Cost of the GHG Cap-and-Trade Program in H.R. 2454
Sh<tfe of Average
Tot«1 Allowilnce Cost per
Cost V<tltle Household
(BlIIlons of dollars) (Percentl IDollars)
Gross Costs of Oomplying With the Cap
Cost of Allowances and Offsets

Market Value of Allo\,mnces 91.4 100.0 7"
Domestlc and Intemallonal Ol'f5els 13.3 n.a. '1'10
Resource Costs 4.9 n,n. 40
Total Gross Cost 109.6 n,a. 890
Disposition of Allowance Va.lue to Domestic Er\tltles
Allocation of Alfow<1nces to Households

LOW-Income rebate and tilx credit -13.7 15.0 ~110
LDC residential cus10mers -14.5 15.a ~115
Al1aclItlon of AJlowancf!s to Businesses
Trade-eXposed Industrles -14.1 15,4 -115
LOG nonresidential customers ~27:1 29.7 -220
Other ~5.5 6.0 -45
Allocation of Allowanc&s to Qo\"emment
Dendi reducUon -1.0 1.1 -'10
Energyefflclency and clean energy leclmology .(;.9 7.5 -85
other pUbliC purposes -2.3 2.5 -20
Total -65.0 93.0 ,(;90
other Transfers
Low-Income Relmte and Tax Credit Not Covered by Allowance Allocation -2.6 n.a. -25
Automatic Indexing of Ttlxes and Transfers -s.7 n.u. ~70
Net Income to Providers or Domesllc Offsets -2.7 n.a. -20

Total ~14.3 n.a. -115
Additional Government Costs
LOVf-lnoome Rebate and Tax Credit Not Covered by Allowanci:! Allocation 2.8 O.a. 25
Al1tomalic IndeXing of Tmces and Transfers 8.7 Il.a. 70
Total 11.6 n.El. 95
Net Economywlde Cost 21.9 175
Memorandum: Source of Net Economywlde Cost

lnternallona1 offsets 7.8 n.a. G8
ProducllDll cost of domesllc offsels 2.7 n.a. 20
Resource costs 4.9 n.a. 40
Allowance 'falue goltlg overseas 8.4 7.0 50
Tobll 2'1.9 lUI. 175
Source: U.S. Congressional Budget Office, 2009.
The Brookings Institution, 2009
This 2009 report from the Brookings Institution estimated that Waxman-Markey
(WM) would have severe impacts on the U.S. economy.26 These include (prices and
costs in 2008 dollars):
• An annual U.S. GDP decrease of about 1.75 percent in 2030.

Based on EIA forecasts, this indicates that WM will reduce U.S.
'8The Brookings Institution, Consequences of Cap and Trade, June 2009.

20
GOP in 2030 by about $430 billion -- a loss of about $3,100 per
U.S. household per year - and things get worse after 2030.
• By 2018, WM would cause the loss of about 700,000 jobs.
• Inflation would be 4-5 percent higher over the next two decades.
• The impact on the coal industry would be devastating: By 2025,
the cost of coal would more than double, increasing 110 percent;
. coal production in 2025 would be 40 percent lower, and by 2025,
employment in the coal sector would decline by 50 percent.
• The petroleum sector would also be severely affected: By 2025,
crude oil costs would increase 40 percent; crude oil production in
2025 would decline by more than 40 percent, and by 2025, jobs in
the crude oil sector would decline by nearly 40 percent.
• CO 2 prices would increase continuously: $45/ton in 2020, $80/ton
in 2030, $100/ton in 2040, and more than $120/ton in 2020.
• Allowance values increase rapidly, reachi(lg over $320 billion per
year by 2025
• Finally, over the next four decades, WM would result in a wealth
transfer via allowances of $9.2 trillion.
The authors noted that the U.S. Congress continues to debate a potential cap-
and-trade program for the control of GHG emissions. The economic effects of such a
bill remain in dispute, with some arguing that a cap-and-trade program would create
jobs and improve economic growth and others arguing that the program would shift jobs
overseas and hit households with large energy price increases.
Brookings used a global economic model to evaluate different emission reduction

paths and to develop insights for policymakers about how to the design the C&T
program to lower the costs of achieving long-run environmental goals. The study
examined GHG emissions reduction paths that are broadly consistent with proposals by
President Obama and with Waxman-Markey, and also evaluated two cost minimizing
paths that reach similar goals. The study estimated that alternative paths to reach an
emission reduction target of 83 percent below 2005 levels by 2050:
• Reduce cumulative U.S. emissions by 38 percent to 49 percent,

about 110 to 140 billion metric tons CO 2
• Reduce personal consumption by 0.3 percent to 0.5 percent --
about $1 to $2 trillion in discounted present value, 2010 to 2050
• Reduce the level of U.S. GOP by around 2.5 percent relative to
what it otherwise would have been in 2050
• Reduce employment levels by 0.5 percent in the first decade, with
large differences across sectors
• Create an annual value of emission allowances of over $300 billion
by 2030, and a total value of over $9 trillion, 2012 - 2050
The authors examined four scenarios:
21
.
• Obama - GHG emissions 14 percent lower by 2020
• WaxmanDMarkey -- GHG emissions 20 percent lower by 2020 and
40 percent lower by 2030
• Hotelling 2050 -- Least cost path to 83 percent reduction by 2050
• Hotelling Cumulative -- least cost path with the same cumulative
emissions as Obama .
The major findings are illustrated in Figures 111-4 through 111-8
Carbon prices would increase continuously, from $45/ton in 2020 to more than
$120/ton by 2050 - Figure 111-4.
Figure 111-4
Carbon Prices Under Alternative Policies
140
120
8 100
'0
e" 80
[
a'"
~.
60
40-
~
20
o +--JL_-+ I +I- - - - - " - - - + 1 - - - + - 1- - - + I - - - + - - -

2010 2015 2020 2025 2030 2035 2040 2045 2050
Year
---Obama -WaxmanwMarkey -Hotelling 2050 --- Hotelling Cumulative
Source: The Brookings Institution, 2009
22
U.S. GOP would decline continuously - Figure 111-5.
Figure 111-5
Effect of Alternative Policies on US GOP
0.5
~
c
!" -05
§ -1.0 -
.::
"!!' -15
;5
t: -2.0
~
~ -2.5
2010 2015 2020 2025 2030 2035 2040 2045 2050

Year
..... _--------_. __._--_._----,,-_._.__._--
--'-~-'-'-'---'--'-'--'------'-'-'--'----'--'---'----'-------_
- Obama - Waxman-Markey - Hotelling 2050 - Hotelling Cumulative

Source: The Brookings institution, 2009
Total employment would be reduced - Figure 111-6.
Figure 111-6
Effect of Alternative Policies on US Employment
0.1
e
~ 0.0
~
~ -0.1-
E
,g -0.2
!'o
c
~ -0.3
r•
u
-0.4 --
e -O.S
OJ
a.
-0, G - ----·--T-·--··---·-I-·-----,-·--·----T--·--·-·... ·-r-----r--'---'--'l--~·---r'-·---·---'T'--'---___,---'---' ...r-___,___
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032
Year
-------------------------------------------------------1
[=2~_a_rn_~_::::_\l\f~~:"''_~~Mar_~~y_=~''!.e~~_E()_~
__=!"!~~Iin_~~~:''.LJI~,ti~J
23
The U.S. coal and petroleum sectors would be devastated - Figure 111-7.
Figure 111-7
Effect on Production in 2025
Sector
.Obama I!II Waxman-Markey. Hotelling 2050 III Hotelling Cumulative

Employment in the U.S. domestic coal and petroleum sectors would decline
drastically - Figure 111-8.
Figure 111-8
Effect on Employment in 2025
Sector
.Ohama JI Waxman~Markey • HoteHing 2050 II Hotelling Cumulative

---- ---------------- -----------
24
III.B. Recent Studies of the Impact of Climate Change Legislation
Coalition for Affordable American Energy, 2009
This CAAE report analyzed the potential economic impacts of the climate
provisions contained in the Obama Administration's FY 2010 Budget Proposal. 27 The
study examined the cap and trade policy described in the Administration's FY 2010
Budget Proposal, including the stated caps on U.S. GHG emissions and proposals for
use of the revenues to fund renewable energy programs, the "Making Work Pay" tax
credits, and other transfer payments.
The report found that these climate provisions would have significant economic
and energy market impacts and that market shares would shift within the energy sector.
Natural gas is projected to expand its market share, particularly for power generation.
Increased imports of natural gas are estimated to supply most of the increased
domestic demand for natural gas, whereas domestic natural gas production is projected
to increase slightly. Both oil and coal are estimated to decline in market share. These
measures would tend to lower rates of return on investments in the production of
domestic oil and petroleum products. With lower rates of return, domestic investment
levels would fall. Domestic crude oil and refined products production are projected to
decline, while the share of renewable energy is estimated to rise.
The results also indicated that business users and consumers would face higher
energy costs and the resulting higher energy production and transportation costs would
lead to increased costs of goods and services throughout the economy. As these latter
costs rise, household disposable income and household consumption would fall. The
cap and trade policy would cause more investment in costly forms of renewable energy,
thereby directing funding away from investments with greater potential to enhance
productivity, and the economy would grow more slowly and job growth would decline.
Overall, the economy would be expected to grow more slowly, leading to substantial
differences in disposable income and personal consumption -- Table 111-4. Specific
economic impacts, beginning in the 2012, include the following:
• CO 2 emissions would be reduced through decreased use of

conventional energy. As the cap progressively tightens, the cost of
reducing emissions becomes more expensive and the cost of a
carbon allowance increases. In 2015, the cost of a carbon
allowance is estimated to be $29/mtC0 2 . By 2020, the allowance
cost increases to $66/mtC0 2 and by 2030 the allowance cost could
reach $116/mtC0 2 .
• The cost of energy is projected to increase relative to the baseline
as a result of the substitution away from less costly conventional
fuels. Natural gas demand, primarily for electricity generation, is
projected to increase as coal-generated electricity is backed out
27Coalition for Affordable American Energy, Impact on the Economy of the Climate Provision in the
Obama Administration's FY 2010 Budget, report prepared by CRA International, April 2009.
25
due to tightening GHG emission caps, and motor fuel costs are
projected to increase. After a 39 percent increase ($4.70 per
MMBtu) in natural gas costs by 2020, natural gas costs increase by
56 percent ($7.20 per MMBtu) by 2025. After an estimated 48 ¢/gal
increase in 2020, motor fuel costs increase 19 percent (74 ¢/gal).
Electricity costs increase 27 percent (3.6 ¢/ kWh) in 2020, rising by
44 percent (5.8 ¢/kWh) in 2025.
• After an initial net job loss of 800,000 in 2015, net job losses are
projected to more than double by 2020 to 1.9 million and continue
to increase to 3.2 million jobs by 2025. This estimated employment
impact is inclusive of jobs that would be created by the budget
proposal. While all regions of the country would be adversely
impacted, the Southeast, Oklahoma, Texas, and California would
be disproportionately affected.
Table 111-4
Summary of Projected Economic Impacts
(Change from Projected Baseline)
U.s. Job Los.es (Millions) 0.8 3.. 2 3.2

. Change in U,S. Household Purchasing
Power -$1020 -$1,381 -$1.823 -$2127
($2008 per Household)
Percent Change in U.S. GDP -0.3% wOA% ~O.7% -0.2%
Percent Change in U.S. Investment -1.3% +0.6% +0.3% +5.6%
Percent Change in Natura! Gas Cost

16'% 39% 56% 53%
($1.90/MMBtu) (M.70 fMMBIU) ($7.20IMMBto) ($7.70/MMBtu)
6% 13% 19% 20%

Percent Change in Motor Fuel Cost (21 Cents/Gallon) (4B CenlsfGallon) (74 Cents/G~Hon) (78 Gents/Gallon)
Percent Change in Electricity Cost

15% 27% 44% 51%
(2 Cents! kWh) (3.6 Cenls! kWh) (5.8 Cents! kWh) (fI.e Cents! kWh)
Source: Coalition for Affordable American Energy, 2009.
• Projected impacts on .household purchasing power would be

severe: Per household purchasing power is estimated to decline by
$1,020 in 2015, by $1,381 in 2020, and $2,127 by 2030.
• Aggregate U.S. investment is projected to drop by 1.3 percent
below the baseline level in 2015, but then is projected to increase
over the 2020 - 2030 timeframe as required investments in lower
emitting GHG technologies and energy efficiency improvements are
put in place to comply with ever more stringent carbon caps. By
2030, investment is 5.6 percent above the baseline level. The
increasingly stringent carbon caps redirect capital from higher to
lower productive uses, and this shift would have a large adverse
impact on productivity growth.
26
• By 2025, GDP is estimated to be 0.7 percent ($150 billon) below
the baseline level, driven principally by declining consumption.
Commercial transportation services, electric generation, and
agriculture would be among the most affected sectors. In 2030,
GDP is 0.2 percent ($39 billon) below the baseline level.
There would be significant changes to energy supply and consumption:
• There would be a shift towards the use of natural gas in the next
decade in large measure because of increased use of natural gas
for electricity generation. By 2025, U.S. demand for natural gas is
estimated to increase by 3.0 Tef relative to the baseline level. This
demand increase would result in an estimated cost increase of
natural gas to consumers of 56 percent ($7.20 per MMBtu) by
2025. By 2030, the impact on demand lessens to 1.5 Tef.
• Most of the estimated natural gas demand growth would be met by
imports. Increased costs· for domestic oil and .natural gas
producers retard development of domestic natural gas resources.
By 2025, natural gas imports rise by 160 percent (2.0 Tcf) above
the baseline level, whereas domestic natural gas production
increases by only 5 percent (0.7 Tef).
• The increased costs imposed on U.S.-located refineries to cover
facility GHG emissions would not be faced by refineries located
outside the U.S., which would put U.S. refineries at a competitive
disadvantage.
• Demand for refined products would be reduced, and this decline
would fall disproportionately on U.S. producers. U.S. production of
refined products is projected to decline relative to baseline levels by
604 - 2,151 MBOE/day (3.9 to 13.6 percent annually), 2020-2030.
Higher energy costs would cause decreases in demand for goods and services
and, in addition, as the expected costs of energy services climb, the productivity of
capital and labor tend to fall. Business activity is likely to contract, the demand for labor
would tend to weaken, and employment is projected to decline relative to the baseline.
Table 111-4 illustrates that 2015 job losses are estimated to be 0.8 million, they more
than double by 2020 to 1.9 million job losses, and by 2025 - 2030, job losses increase
to 3.2 million. These employment impacts are inclusive of jobs that would be created.
While job losses would be distributed throughout the country, the southeast, California,
Oklahoma, and Texas would be disproportionately affected.
27
Heritage Foundation, 2008
This Heritage Foundation report estimated the economic impacts of Senate bill
2191, "America's Climate Security Act of 2007," sponsored by Joseph Lieberman (I-CT)
and John Warner (R_VA).28 S. 2191 imposes strict upper limits on the emission of six
GHGs with the primary emphasis on C02, and would establish a cap-and-trade system.
Heritage estimated the cost of S. 2191 at $800 to $1,300 per household by 2015, rising
to $1,500 to $2,500 by 2050. Electricity prices could increase 36 to 65 percent by 2015
and 80 to 125 percent by 2050.
The Heritage analysis found that S. 2191 posed extraordinary perils for the
American economy. Arbitrary restrictions predicated on multiple, untested, and
undeveloped technologies would lead to severe restrictions on energy use and large
increases in energy costs. In addition ,to the direct impact on consumers' budgets,
these higher energy costs will spread through the economy and inject unnecessary
inefficiencies at virtually every stage of production and consumption.
S. 2191 extracts trillions of dollars from U.S. energy consumers and delivers this
wealth to permanently identified classes of recipients, such as tribal groups and
preferred technology sectors, while largely circumventing the normal congressional
appropriations process. Unbound by the periodic review of the normal budgetary
process, this de facto tax-and-spend program threatens to become permanent --
independent of the goals of the legislation. Heritage found that implementing S. 2191
will be very costly:
• Cumulative GDP losses are at least $1.7 trillion and could reach
$4.8 trillion by 2030 (in inflation-adjusted 2006 dollars).29
• Single-year GDP losses total at least $155 billion and could exceed
$500 billion (in inflation-adjusted 2006 dollars).
• Annual job losses exceed 500,000, and could approach 1,000,000.
• Annual costs of emission permits will be at least $100 billion by
2020 and could exceed $300 billion by 2030 (2006 dollars).3o
• The average household will pay $467 more each year for its natural
gas and electricity (in inflation-adjusted 2006 dollars). This means
that the average household would spend an additional $8,870 to
purchase energy over the period 2012 through 2030.
• The cost of the allowances will be significant and will lead to large
increases in the cost of energy. Because the allowances have an
economic effect much like an energy tax, the increase in energy
2BHeritage Foundation, The Economic Costs of the Lieberman-Warner Climate Change Legislation,
Heritage Foundation Center for Data Analysis Report #08-02, May 2008.
29T he analysis did not extend beyond 2030, at which point S. 2191 mandates GHG reductions to 33
percent below the 2005 level. However, it should be noted that the mandated GHG reductions continue
to become more severe and must be 70 per-cent below the 2005 level by 2050.
30To put these numbers in perspective, the report noted the federal govemment spent $43 billion on the
Department of Homeland Security in 2007, $155 billion on U.S. highways in 2005, and $549 billion on the
Department of Defense in 2007.
28
costs creates correspondingly large transfers of income from
private energy consumers to special interests.
With S. 2191, there is an initial small employment increase as firms build and
purchase the newer more C02-friendly plants and equipment. However, any "green-
collar" jobs created are more than offset by other job losses, and the initial uptick is
small compared to the hundreds of thousands of lost jobs in later years.
The slowdown in GDP is seen more dramatically in the decline in manufacturing

output. Manufacturing benefits from the initial investment in new energy production and
fuel sources, but the sector's declines are sharp thereafter. By 2020, manufacturing
output is 2.4 percent to 5.8 percent below what it would be if S. 2191 never becomes
law. By 2030, the manufacturing sector has lost $319 billion to $767 billion in output.
Employment growth slows sharply following the boom let of the first few years and
potential employment decreases sharply. In 2025, nearly 500,000 jobs per year fail to
materialize and job losses expand to more than 600,00.0 in 2026. In no year after the
boom let does the economy outperform the base-line economy, and for manufacturing
workers, the news is especially grim. That sector would likely continue declining in
numbers thanks to increased productivity: The baseline contains a 9 percent decline
between 2008 and 2030. Lieberman-Warner accelerates this decrease substantially:
Employment in manufacturing declines by 23 percent over that same time period, or
more than twice the rate without Lieberman-Warner.
Other, less energy-intensive sectors do not suffer such decreases. Employment

in retail establishments ends the 22-year period 2 percent ahead of its 2008 level,
despite significant cutbacks on household consumption levels. Employment in
information businesses grows by 29 percent over this same time period. Because the
distribution of energy-intensive jobs across the country is unequal, some states and
congressional districts will be hit particularly hard. Notable among the most adversely
affected states are Wisconsin, New Hampshire, Illinois, and Maryland.
The report concluded that the Lieberman-Warner climate change bill is, in many
respects, an unprecedented proposal. Its limits on GHGs would impose significant
costs on the entire American economy. In addition, complicated tariff rules, dependent
on evaluating the GHG restrictions of all trading partners, add another unknowable
dimension to the costs, fueling the overall uncertainty. The problems for the U.S.
economy are increased by S. 2191's reliance on complex and costly technologies that
have yet to be developed. The fact that this large-scale transformation of the economy
must occur over relatively tight timeframes only amplifies the costs and uncertainties.
Even under optimistic assumptions, the economic impact of S. 2191 is likely to

be serious for the job market, household budgets, energy prices, and the economy
o\(erall. The burden will be shouldered by the average American. The bill would have
the same effect as a major new energy tax -- only worse. In the case of S. 2191,
increases in the tax rate are set by forces beyond legislative control. Under a realistic
29
set of assumptions, the impact would be severe. More significant than the wealth
destroyed by S. 2191 is the wealth transferred from the energy-using public to a list of
selected special interests. The reported concluded that, overall, S. 2191 would likely be
-- by far -- the most expensive environmental undertaking in history.
.American Council for Capital Formation and National Association of

Manufacturers, 2008
The American Council for Capital Formation (ACCF) and the National
Association of Manufacturers (NAM) commissioned this report by SAIC to examine the
potential costs that enactment of the Lieberman-Warner (LW) Climate Security Act (S.
2191) would impose on the U.S. economy.31 They felt that the cost to U.S. consumers
and employers of implementing GHG emission reductions is highly dependent on the
market penetration achieved by key technologies and the availability of carbon offsets
by 2030. Understanding the potential economic impacts at the national, state, and
individual household levels can help guide choices on policy to minimize the impacts on
economic growth and maximize environmental benefits. GHG reduction policies should
consider impacts on energy security, economic growth, and U.S. competitiveness.
The ACCF/NAM analysis was conducted using EIA's NEMS model, and the
study applied assumptions about the cost and availability of new energy technologies,
oil prices, and other key factors. It found substantial and growing impacts to consumers
and the economy of meeting the increasingly stringent emission targets through 2030
established by LW. Among the study's major findings are:
• The CO 2 emissions allowance price needed to reduce energy use

to meet the S.2191 targets is estimated at $55 to $64/mtC02 in
2020, rising to between $227 to $271/mtC02 in 2030.
• The cost of the allowances raises energy prices for residential .
consumers by: Natural gas -- 26 percent to 36 percent in 2020,
and 108 percent to 146 percent in 2030; Electricity -- 28 percent to
33 percent in 2020, and 101 percent to 129 percent in 2030.
• These increased costs slow the economy by $151 - $210 billion in
2020 and $631 c $669 billion in 2030 (2007 dollars). This causes
job losses of 1.2 - 1.8 million in 2020 and 3 - 4 million by 2030.
• Manufacturing slows: The value of shipments falls by 3.2 percent
to 4 percent in 2020 and in 2030 by 8.3 - 8.5 percent. Higher
energy costs, lower economic activity, and fewer jobs in turn lowers
average household income by $739 - $2,927 in 2020 and between
$4,022 and $6;752 in 2030 (2007 dollars).
31 The American Council for Capitai Formation and the Nationai Association of Manufacturers, Analysis of
the Lieberman-Warner Climate Security Act (S. 2191) Using the Nalional Energy Modeling System
(NEMSlACCF/NAM), report prepared by SAIC, March 2008.
30
Obtaining allowances becomes a cost of doing business for firms subject to the
C02 cap. However, those firms would not ultimately bear most of the costs of the
allowances. Instead, they would pass along most costs to their customers in the form of
higher prices. By attaching a cost to CO 2 emissions, a cap-and-trade program would
thus lead to price increases for energy and energy-intensive goods and services. Such
price increases would stem from the restriction on emissions and would occur
regardless of whether the government sold emission allowances or gave them away.
The price increases would be essential to the success of a cap-and-trade program
because they would be the most important rnechanism through which businesses and
households were encouraged to make investments and behavioral changes that
reduced C02 emissions. The rise in prices for energy and energy-intensive goods and
services would be regressive and would impose a larger burden, relative to income, on
low-income households than on high-income households.
The ACCF/NAM analysis investigated the sensitivity of assumptions that have

proven in the past to significantly impact the cost of limiting CO 2 emissions frorn energy
- particularly the availability of improved technology in the early decades of a long-term
effort to reduce GHGs. These assumptions include the availability of nuclear power
technology, the availability of CGS for coal and natural gas-based power generation
technologies, the availability of wind and. biornass technologies, and the availability of
low-cost offsets (international and domestic).
The study's key finding is that S. 2191 would cause significant employment loss
due to the loss of revenues resulting from higher fuel and electricity costs. In 2020, job
loss is projected to range from 1.2 million to 1.8 million jobs/year, and from 3 rnillion jobs
to 4 rnillion jobs in 2030. Under S. 2191 the U.S. econorny would begin to shed
approxirnately 850,000 jobs a year by 2014 under the low cost scenario (Figure 111-8).
This is prirnarily a result of higher carbon prices resulting in higher fuel costs for industry
and higher cost to industry to comply with emissions Iirnits. As the cap becornes more
restrictive and the econorny has less freedom to deal with reducing ernissions, carbon
prices and fuel prices increase rapidly, leading to greater job losses of between 1.2 and
1.8 rnillion jobs in 2020 and between 3 and 4 fewer rnillion jobs in 2030. These job
losses are net of the new jobs which may be generated by increased spending on
renewable energy, energy efficiency, and carbon capture and storage. .
III.C. U.S. Energy Information Administration Reports
EIA has conducted nurnerous studies of the impact of climate change legislation.
Several of the more notable of these are summarized below.
31
Figure 111-8
Estimated Job Losses from Lieberman-
Warner
Employment Loss
0.00 , , , ,
~
.l'J
·0.50
·1.00
-1:.50
i,'
, "'" "-
", '\.
'~,
"- "" "-...

~
-2.00
-2.50
",
, ,f
iiB;~\:!ml
,
--...... '\.
-3.00
.3.50
,j )
i 0,)0i"
!}if;i,l',,'f\:Yi'
1.j' ,; "'\,1' " ,
,
\
'" '\.'\.
-4.00 ,
iii; F'1!t', ,;,{O, ,
'it"'! ;
4.50
!3> S- II>
f:J'S
~""
,,':>
~'"
,
r;,' 0$> (1," tV ~ ~ (f'
'),(') ~ '1J '),'> <),,(;j '1) '),'=' ~ ~ ~ <),,"> ~
I_High Coot _low COGt I
Source: American Council for Capital Formation and National Association of Manufacturers, 2008.
EIA, August 2009
This report examined the energy-related prOVIsions in ACESA that can be

analyzed using EIA's National Energy Modeling System (NEMS).32 The Reference
Case used as the starting point for the analysis was an updated version of the Annual
Energy Outlook 2009 (AE02009) Reference Case issued in April 2009. Key provisions
of ACESA analyzed include: 33
• The GHG cap-and-trade program for gases other than HFCs,

• The combined efficiency and renewable electricity standard
• The CCS demonstration and early deployment program
• Federal building code updates
• Federal efficiency standards for lighting and other appliances
• Technology improvements
• The smart grid peak savings program
"u.S. Energy Information Administration, Energy Market and Economic Impacts of H.R. 2454, the
American Clean Energy and Security Act of 2009, SR/OIAF/2009·05 August 2009.
33 EIA did not address all the provisions of ACESA, and its analysis did not account for any possible health
or environmental benefits that might be associated with curtailing GHG emissions.
32
While the emissions caps decline through 2050, the modeling horizon in this
report runs only through 2030, the projection limit of NEMS. 34 EIA prepared a range of
analysis cases, and the six main analysis cases focused on two key areas of
uncertainty that impact the analysis results. First, the role of offsets is a large area of
uncertainty in any analysis of ACESA. The 2-BMT annual limit on total offsets in
ACESA is equivalent to 1/3 of total energy-related 2008 GHG emissions and represents
nearly six times the projected growth in energy-related emissions through 2030.
The other major area of uncertainty involves the timing, cost, and public
acceptance of low- and no-carbon technologies. For the period prior to 2030, the
availability and cost of low- and no-carbon baseload electricity technologies, such as
nuclear power and fossil with CCS, which can potentially displace a large amount of
conventional coal-fired generation, is a key issue. However, technology availability over
an extended horizon is a two-sided issue. R&D breakthroughs over the next two
decades could expand the set 'of reasonably priced and scalable low- and no-carbon
energy technologies, with opportunities for widespread deployment beyond 2030. The
achievement of significant near-term progress towards such an outcome, however,
could significantly reduce the size of the bank of allowances that covered entities and
other market participants would want to carry forward to meet compliance requirements
beyond 2030.
The main analysis cases discussed in this report are as follows: 35
• The ACESA Basic Case assumed that key low-emissions

technologies, including nuclear, fossil with CCS, and renewables,
are deployed in a timeframe consistent with the emissions
reduction requirements and that use of offsets is not constrained.
• The ACESA Zero Bank Case is similar to the Basic Case except
that no banked allowances are held in 2030.
• The ACESA High Offsets Case is similar to the Basic Case except
that it assumed the near immediate use of international offsets.
• The ACESA High Cost Case is similar to the Basic Case except
that the costs of nuclear, coal with CCS, and biomass are assumed
to be 50 percent higher.
• The ACESA No International Case is similar to the Basic Case, but
assumed that the use of international offsets is severely limited.
• The ACESA No International/Limited Case combined the treatment
of offsets in the ACESA No International Case with an assumption
that deployment of key technologies cannot expand beyond their
Reference Case levels through 2030.
34As in EIA analyses of earlier cap-and-trade proposals, the need to pursue higher-cost emissions
reductions beyond 2030, driven by tighter caps and continued economic and population growth, can be
analyzed by assuming that a positive bank of allowances is held at the end of 2030 in all but one case.
35EIA also discussed a number of additional analysis cases, including an enhanced CAFE standards
case, a 5-percent discount case, a case with limitations to the penetration of nuclear, CCS, and biomass
gasification, an accelerated energy technology case, and a higher level of allowance banking case.
33
EIA found that the reduction in covered emissions is exceeded by the amount of
compliance generated through offsets in most of the main analysis cases. Cumulative
compliance between 2012 and 2030 ranges from 24.4 BMT to 37.6 BMT CO 2-
equivalent emissions in the main analysis cases, representing a 21 - 33 percent
reduction from the cumulative covered emissions projected in the Reference Case.
Most reductions in energy-related emissions are expected to occur in the electric

power sector. . Across the ACESA main cases, the electricity sector accounts for
between 80 and 88 percent of the total reduction in energy-related CO 2 emissions in
2030.' Reductions in electricity-sector emissions are primarily achieved by reducing
conventional coal-fired generation and increasing the use of no- or low-carbon
generation technologies. In addition, a portion of the electricity-related CO 2 emissions
reductions results from reduced electricity demand. If new nuclear, renewable, and
fossil plants with CCS are not deployed in a timeframe consistent with emissions
reduction requirements under ACESA, covered entities respond by increasing their use
of offsets and by increasing natural gas use to offset reductions in coal generation.
Emissions reductions from changes in fossil fuel use in the residential,

commercial, industrial, and transportation sectors are small relative to those in the
electric power sector. Taken together, changes in fossil fuel use in these sectors
account for between 12 percent and 20 percent of the total reduction in energy-related
CO 2 emissions relative to the Reference Case in 2030. .
GHG allowance prices are sensitive to the cost and availability of emissions
offsets and low-and no-carbon generating technologies. Allowance prices in the
ACESA Basic Case are projected at $32/mt in 2020 and $65/mt in 2030. Across all
main analysis cases, allowance prices range from $20/mt to $93/mt in 2020 and from
$41/mt to $191/mt (2007 dollars) in 2030.
ACESA increases energy prices, but effects on electricity and natural gas bills
are mitigated through 2025 by the allocation of free allowances to utilities. Electricity
prices in five of the six main ACESA cases range from 9.5¢/kWh to 9.6¢/kWh in 2020,
only 3 to 4 percent above the Reference Case level. Average impacts on electricity
prices in 2030 are projected to be substantially greater and in 2030 range from
10.7¢/kWh to 17.8 ¢/kWh. ACESA thus increases the cost of using energy, which
reduces real economic output and purchasing power, and lowers aggregate demand.
The result is that projected real GOP generally falls relative to the Reference Case.
Total discounted GOP losses over the 2012 to 2030 time period are.$566 billion (-0.3
percent) in the ACESA Basic Case, with a range from $432 billion (-0.2 percent) to
$1,897 billion (-0.9 percent) across the main ACESA cases (Table 111-5).
Consumption and energy bill impacts can also be expressed on a per household
basis. In 2020, the reduction in household consumption is $134 (2007 dollars) in the
ACESA Basic Case, with a range of $30 to $362 across all main ACESA cases. In
2030, household consumption is reduced by $339 in the ACESA Basic Case, with a
range of $157 to $850 across all main ACESA cases.
34
Table 111-5
Macroeconomic Impacts of ACESA Cases Relative to the Reference Case
, (billion 2000 dollars, except, where noted)
•
No
Zero High High No Int I
Basic tnternati
Bani, Offsets Cost Limited
onal
Cumulative Real Imtacts 2012·2030 (oresent value usina 4·oercent discount ratel
GOP
Chanae -566 -432 -523 -781 -717 -1897
.
Percent Chanae -0 ..3% -0.2% -0.2% -0..4% -0.3% -0.9%
Consumotion
Chanae I -273 I -196 I -252 I -384 I -323 I -988
Percent Change I -0..2% -0.1% -0.2% I -0.3% -0.2% -0.7%
Industrial Shioments (excludes services)
Chanae -910 -753 -480 -958 -1720 -2877
Percent Change -1.0% -0.8% -0.5% -1..1% -1.9% -3.2%
Nominal Revenue
Collected 2012-2030' 2971 1292 1332 2299 3462 6350
2020 Imoacts Inot discountedl
GOP
Change I -50 -19 -26 I -70 -34 I -112
Percent Chanae I -0.3% 1 -0.1% I -0.2% I -0.5% I -0.2% I -0.7%
Consumption
Change I -21 I -7 I -II I -30 I -15 I -64
Percent Chanae I -0.2% I -0.1% I -0.1% I -03% I -0.1% I -0.6%
Industrial Shinments lexcludes servicesl
Change -68 -54 . -32 -69 ·108 -186
Percent Chanae -1.0% ~O.8% -05% -1.0% -1.6% -2.8%
Nominal Revenue
Collected' 71 44 46 79 118 215
2030 Imoacts Inot discountedl
GOP
Chanae I -161 I -104 I -120 I -214 I -226 I -453
Percent Cnanae I -0.8% I -0.5% I -0.6% I -1.1% I -1..1% I -23%
Consumption
Chanue I -63 I -36 I -50 I -97 I -69 I -180
Percent Chanae I -0.4% I -0..3% I -0.4% I -0.7% I -0.5% I -1.3%
Industrial Shipments (excludes services)
Channe -183 -125 -87 -198 -338 ·506
Percent C hanae -2.5% -1.7% -1..2% -2.7% -4.6% -6.8%
Nominal Revenue
Collected' 330 205 211 367 556 1030
Source: U.S. Energy Informallon AdmlnlSlrallon, 2009.
EIA, April 2008
This report was a response to a request from Senators Lieberman and Warner
for an analysis of S. 2191, the Lieberman-Warner Climate Security Act of 2007, a
complex bill regulating emissions GHGs through market-based mechanisms, energy
efficiency programs, and economic incentives. 36 To analyze the provisions of S. 2191,
several alternative cases were prepared:
'6U.S. Energy Informalion Adminislration, Energy Market and Economic Impacts of S. 2191, the
Lieberman-Warner Climate Security Act of 2007, SR/OIAFI2008-01, April 2008.
35
o The S. 2191 Core Case assumed that key low-emissions
technologies, including nuclear, fossil with CCS, and various
renewables, are deployed in a timeframe consistent with the
emissions reduction requirements.
o The S. 2191 No International Offsets Case, is similar to the S. 2191
Core Case, but assumed that use of international offsets is limited.
o The S. 2191 High Cost Case is similar to the S.2191 Core Case
except that the costs of nuclear, coal with CCS, and biomass are
assumed to be 50 percent higher than in the Core Case.
o The S. 2191 Limited Alternatives Case assumes the deployment of
key technologies, including nuclear, fossil with CCS, and various
renewables, is held to their Reference Case level through 2030, as
are imports of LNG.
EIA's key findings included the following:
o S. 2191 significantly reduces projected GHG emissions compared

to the Reference Case. Projected covered emissions in the S.
2191 cases, net of offsets, are 27 percent to 36 percent lower in
2020 and 45 percent to 56 percent lower in 2030.
o The electric power sector accounts for most of the emissions
reductions, with new nuclear, renewable, and fossil plants with CCS
serving as the key compliance technologies. Electric power
accounts for 82 - 87 percent of energy-related CO 2 emissions
reductions in 2020 and 82 - 92 percent of such reductions in 2030.
o If new nuclear, renewable, and fossil plants with CCS are not
deployed rapidly enough, covered entities are projected to turn to
increased natural gas use to offset reductions in coal generation,
resulting in markedly higher delivered prices of natural gas.
o Emissions reductions in the residential, commercial, industrial, and
transportation sectors are small relative to those in the electric
power sector, and energy price increases are not large enough to
induce consumers to make large changes in their energy use.
o Coal consumption is significantly reduced, and total coal
consumption in 2030 ranges between 62 and 89 percent below the
Reference Case level.
o GHG allowance prices are sensitive to the cost and availability of
low-carbon generating technologies and emissions offsets.
Estimated allowance prices range from $30 to $76/mtC0 2e in 2020
and from $61 to $156/rntC0 2 e in 2030.
o S. 2191 increases energy prices and energy bills for consumers.
Relative to the Reference Case, the price of using coal for power
generation is 161 - 413 percent higher in 2020 and 305 - 804
percent higher in 2030. The price of electricity is 5 - 27 percent
higher in 2020 and 11 - 64 percent higher in 2030. Under S. 2191,
36
average annual household energy bills, excluding transportation
costs, are $30 - $325 higher in 2020 and $76 - $723 higher in 2030.
• S. 2191 increases the cost of using energy, which reduces real
economic output, reduces purchasing power, and lowers aggregate
demand, and GOP falls relative to the Reference Case. Adverse
economic impacts increase over time, and discounted GOP losses,
2009 - 2030, range from $444 billion (-0.2 percent) to $1,308 billion
(-0.6 percent) -- Table 111-6.
• S. 2191 impacts industrial activity, including manufacturing, to a
greater extent than the overall economy. Industrial shipments in
2030 are reduced by $233 - $589 billion (-2.9 to -7.4 percent).
Table 111-6
Macroeconomic Impacts of 5.2191 Cases and S. 1766 Update Cases
(billion 2000 dollars, except where noted)
S. 2!9! Ca..,
'Limitp,d
No 51766 Up,!al.
.Limited Alteruatives
Cure HighCo't Intel1lRt:iomd
Alternatives No
Offs('ts
International
Cu.mulative Real Impads 200.9-2030 (Present Value using 4% Discount Rate)
GDP .
Clian•• I (444) I (729) I (912) I (546) I !I.306) I (661

,Percent Change I -.0.2% -0.3% ~O.4% I -0.2% -0.6% I -0.03%
ConsmnpUou
Cllan.e I (558) I (785) I (946) I (7801 I !I.422) I (145)
PeTcent Change -0.3% -05% ,·0.6% I - -0.5% I -0.9% -0.1%
I.udustdal Shimnellt:s (excludes services)
Change (1.340) 0.723) (2,Om (2.430) (3.684) (722)
Percent Change -1.3% -1.7% -2.0% -2.4% -3.6% -0.7%
NOlnimd R~,'enue
collocled 2012- 2.aSI 3,650 4,282 4,416 7.659 987
.2030'
Source: U.S. Energy InformatIon AdminIstratIon, 2008.
EIA, January 2007
This EIA report responded to a request from Senators Bingaman, Landrieu,

Murkowski, Specter, Salazar, and Lugar for an analysis of a proposal that would
regulate GHG emissions through a cap-and-trade system. The proposal was modeled
using NEMS and compared to the reference case projections from the Annual Energy
Outlook 2006 (AEO 2006).37 The major findings included:
• The proposal leads to lower GHG emissions, but the intensity

reduction targets are not fully achieved after 2025.
• Relative to the reference case, covered GHG emissions less offsets
are 562 MMTCOze (7.4 percent) lower in 2020 and 1,259
37U.S. Energy Information Administralion. Energy Market and ~conomic Impacts of a Proposal to Reduce
Greenhouse Gas Intensity With a Cap and Trade System, SRiOIAFi2007-01, January 2007.
37
MMTC02e (14.4 percent) lower in 2030 in the Phased Auction
case. Covered GHG emissions grow by 24 percent between 2004
and 2030, about half the increase in the reference case.
• Initially, when allowance prices are relatively low, reductions in
GHG emissions outside the energy sector are the predominant
source of emissions reductions. By 2030, the reduction in energy
related CO 2 emissions account for most emissions reductions.
• In 2004 dollars, the allowance prices rise from $3.70/mtC0 2 in 2012
to the safety valve price of $14.18/mtC0 2 in 2030.
• The cost of GHG allowances is passed through to consumers,
raising the price of fossil fuels charged and providing an incentive
to lower energy use and shift away from fossil fuels.
• The average delivered price of coal to power plants in 2020.
increases from $1.39/MMBTU in the reference case to $2.06, an
increase of 48 percent. By 2030 the change grows from $1.51/
MMBTU to $2.73/ MMBTU, an increase of 81 percent.
• Electricity prices are lower in the Phased Auction case than in the
Full Auction case because the Phased Auction provides a portion of
the allowances to the electric power sector for free.
• Relative to the reference case, annual per household energy
expenditures in 2020 are 2.6 percent ($41) higher in the Phased
Auction case and 3.6 percent ($58) higher in the Full Auction case.
By 2030, projected annual household energy expenditures range
from 7.0 percent to 8.1 percent ($118 to $136) higher.
• Coal use is projected to continue to grow, but at a much slower rate
than in the reference case. Total energy from coal increases by 23
percent between 2004 and 2030, less than half the 53 percent
increase projected in the reference case.
• The proposal significantly increases nuclear capacity additions and
generation. The projected 47 GW increase in nuclear capacity
between 2004 and 2030 allows nuclear to continue to provide about
20 percent of U.S. electricity in 2030.
• The proposal adds significantly to renewable generation. In the
reference case, renewable generation is projected to increase from
358 BkWh in 2004 to 559 BkWh in 2030.
• Retail gasoline prices in 2030 are 11 ¢/gal higher in 2030, leading
to modest changes in vehicle purchase and travel decisions.
• The Phased Auction and Full Auction cases have similar energy
market impacts, but the macroeconomic impacts differ - Table 111-7.
• In the Phased Auction case, wholesale energy prices rise steadily
and, by 2030, are 12 percent above the reference case levels. This
represents 8 percent higher energy prices at the consumer level by
2030 and a1 percent increase in the CPI.
• In the Phased Auction case, discounted total GDP (2000 dollars)
over the 2009-2030 time period is $232 billion (0.10 percent) lower
than in the reference case, while discounted real consumer
38
spending is $236 billion (0.14 percent) lower. In 2030, in the
Phased Auction case, real GDP is $59 billion (0.26 percent) lower
and consumption expenditures are $55 billion (0.36 percent) lower.
Table 111-7
Economi~ Impacts of Phased and Full Auction Cases
2020 2030
Pl'oj ectioll 2004 AEmOO6 Phased Foil AEQ2006 Pll1ued Full
Rl.'f.el'el'il:f! Am.':thm . Au:rti{lu Refel't'D:('l.' Auction AUC'ti1:H.l
Allocation o:f AUm\'iUlC0 Reveuue (billion nominal dollars)
Privl"te Soeudiull . . 39.0 0.0 · 58.6 0.0
Stales . 21.4 0.0 54.9 0.0
Government S".mtiug - 0.0 0.0 · 0.0 0.0
Debt Reduction - 13.3 73.7 · 86.4 199.9
TQta't Reveuue . - 73.7 73.7 - 199.9 199.9
Agl!l'eg:nte Pl'ke:s in the Economy
WPI Fnel & Power (1982 1.27 1.77 l.88 1.88 2.49 2.79 2.79
=1.0\
CP!-En....:v1l982184 -1.01 1.51 2.19 2.27 2.28 2.96 3.20 3.20
CPI- All Urb,n (1982/84- 1.89 2.86 2.88 2.87 3.78 3.82 3.80
l.o)
IJdlatlou Rate, UnE'InploYllilel1t Rate and the Federal Funds Rate fl: t!l'cent-)
Inflation 2.68 3.06 3.13 3.10 2.67 2.68 2.68
. Ulleml>!oymelll Rale 5.53 4.37 4.44 4.46 4.90 5.01 5.02
Feeler:\1 Fllllel. Rat. 1.35 5.24 5.24 5.16 5.04 4.96 4.86
Comuolle"l, of GDP (billion 2000 dollal's)
GDP 10,756 17,541 17,520 17,503 23Jl:2 23~O53 23,018
DisDosable IncOl.ue 8,004 13,057 13,037 12,991 17,562 17,468 17,367
COlllumption 7,589 11,916 11,898 11,880 15,352 15,298 15,247
Investment 1,810 3,293 3,291 3,288 4,985 4,990 4,973
Gavennnent 1,952 2,464 2,474 2,464 2,838 2,861 2,839
Exports 1,118 3,776 3,759 3,765 6,813 6,785 6,813
11Il1Jorts 1,719 3,659 3,660 3,647 6,156 6,165 6,121
Source. U.S. Energy Information Administration, 2008.
39
IV. IMPACTS OF CO2 REGULATION ON THE
NATIONAL ECONOMY
IV.A. Summary Results of Studies
To estimate the likely effects of the EPA Endangerment Finding, we used the
findings of various comprehensive studies conducted in recent years of the impacts of
carbon restrictions on the U.S. economy, jobs, and energy markets. As discussed in
Chapter III, these studies were conducted over the years by a number of organizations
and analyzed a variety of proposed carbon restriction programs. As might be expected,
their findings differed depending on the proposal being assessed, the time frame
studied, the level of detail included, and other factors. However, the studies all
indicated that the kind of carbon restrictions contained in the EPA Finding would have
serious negative effects on the U.S. economy.
First, all of the studies forecast that carbon restrictions would significantly reduce
U.S. GOP every year over the next two decades.. For example, by 2030:
• In 2009, ACCF and NAM estimated that ASCEA would reduce U.S.
GOP by more than $570 billion.
• In 2009, NBCC estimated that ASCEA would re(juce U.S. GOP by
about $250 billion.
• In 2009, the Heritage Foundation estimated that ASCEA would
reduce U.S. GOP by $525 billion.
• In 2009, the Brookings Institution estimated that ASCEA would
.
reduce U.S. GOP by $430 billion .
• In 2009, CAAE estimated that the carbon restrictions contained in
the Obama Administration's FY 2010 budget proposals would.
reduce U.S. GOP by about $50 billion.
• In 2008, the Heritage Foundation estimated that the proposed
Lieberman-Warner Bill would reduce U.S. GOP by $450 billion.
• In 2008, ACCF and NAM estimated that the proposed Lieberman-
Warner Bill would reduce U.S. GOP by $65 billion.
• In 2008, EIA estimated that the proposed Lieberman-Warner Bill
would reduce U.S. GOP by $450 billion.
• In 2007, EIA estimated that a U.S. Senate proposal to restrict
carbon emissions would reduce U.S. GOP by $230 billion.
Second, the studies forecast that carbon restrictions would significantly reduce
U.S. employment over the next two decades. For example, by 2030:
• In 2009, ACCF and NAM estimated that ASCEA would result in the
loss of 2.4 million U.S. jobs.
40
• In 2009, NBCC estimated that AScEA would result in the loss of
2.2 million U.S. jobs.
result in the loss of 1.5 million U.S. jobs.
• In 2009, the Brookings Institution estimated that ASCEA would
result in the loss of 700,000 U.S. jobs.
the Obama Administration's FY 2010 budget proposals would result
in the loss of 3.2 million U.S. jobs.
• In 2008, the Heritage Foundation estimated that the proposed
Lieberman-Warner Bill would result in the loss of 450,000 U.S. jobs.
• In 2008, ACCF and NAM estimated that the proposed Lieberman-
Warner Bill would result in the loss of 3.5 million U.S. jobs.
Third, the studies forecast that carbon restrictions would significantly reduce U.S.
household incomes over the next two decades. For example, by 2030:
• In 2009, ACCF and NAM estimated that ASCEA would result in a

reduction in average household income of about $1,250.
• In 2009, NBCC estimated that ASCEA would result in a reduction in
average household income of about $900.
result in a reduction in average household income of about $2,700
• In 2009, CBO estimated that ASCEA would result in a reduction in
average household income of about $1 ,000.
the Obama Administration's FY 2010 budget proposals would result
in a reduction in average household income of about $2,130.
Finally, all of the studies forecast that carbon restrictions would significantly
increase U.S. energy costs. This is to be expected and is the major effect of
implementing regulations such as the Endangerment Finding. The price increases
would be essential to the program because they would be the most important
.mechanism through which businesses and households were encouraged to make
investments and behavioral changes that reduced CO2 emissions. Nevertheless, the
rise in prices for energy and energy-intensive goods and services would be regressive
and would impose a larger burden, relative to income, on low-income households than
on high-income households.
The EPA Finding would reduce CO2 emissions from all sectors of the economy--
transportation, residential, commercial, and industrial; however, as the largest emitter of
CO 2 , the primary impact would fall on the electric power sector. The Finding would
result in the electric industry shutting down most carbon-based generation or using
expensive, as yet unproven technology, to capture and store CO 2 • To meet the
stringent EPA goals, the electric industry would also have to substitute high cost
technologies, such as biomass and wind, for conventional generation.
41
For example, in 2009 ACCF and NAM estimated that by 2030 ASCEA would
increase (above the 2030 reference case):
• Gasoline prices by 26 percent

• Residential electricity prices by 50 percent
• Industrial electricity prices by 76 percent
.• Residential natural gas prices by 73 percent
• Industrial natural gas prices by 115 percent
• Electric utility coal prices by 760 percent
In 2009, NBCC estimated that by 2030 ASCEA would increase (above the 2030
reference case):
• Natural gas prices by 17 percent

• Motor fuel·prices by 7 percent
• Electricity prices by 24 percent
In 2009, the Heritage Foundation estimated that by 2030 ASCEA would increase
(above the 2030 reference case):
• Gasoline prices by $475 per year

• Residential electricity prices by $500 per year
• Residential natural gas prices by $180 per year
• Heating oil prices by $50 per year
In 2009, EIA estimated that by 2030 ASCEA would increase (above the 2030
reference case):
• Gasoline prices by $1.50/gal.

• Jet fuel prices by 90¢/gal.
• Diesel prices by 80¢/gal
• Residential natural gas prices by $5/mcf
• Electricity prices by $3.70/kWh
• Coal prices to the electric power sector by $6.65 per MMBTU
In 2009, CAAE estimated that by 2030 the carbon restrictions contained in the
Obama Administration's FY 2010 budget proposals would increase (above the 2030
reference case):
• Motor fuel prices by 20 percent

• Electricity prices by 51 percent
• Natural gas prices by 53 percent
42
In 2008, the Heritage Foundation estimated 2008 that by 2030 the proposed
Lieberman-Warner Bill would increase (above the 2030 reference case):
• Electricity prices by $550 per year

• Natural gas prices by $300 per year
• Heating oil prices by $600 per year
In 2008, EIA estimated that the proposed Lieberman-Warner Bill would increase
(above the 2030 reference case):
• Gasoline prices by 60¢/gal.

• Jet fuel prices by $1.00/gal.
• Diesel prices by 70¢/gal
• Residential natural gas prices by $7/mcf
• Electricity prices by $3.20/kWh
• Coal prices to the electric power sector by $7.20 per MMBTU
IV.B. Impacts on GDP, Jobs, and Incomes
Here we relied heavily on the studies of the impact of ASCEA conducted in 2009
by ACCF/NAM, NBCC, and the Heritage Foundation. These three studies are recent,
comprehensive, detailed, and credible. Further, the ACCF/NAM and the Heritage
Foundation studies estimated impacts by state - which are of interest here.
The EPA Finding would significantly increase energy costs, and these higher fuel
prices "force" the economy to undergo a significant shift in fuel conversion technology
selection and utilization and fossil fuel consumption to satisfy the regulation. This
results in reduced wages and incomes, lower commercial and industrial output, and
lower employment and thus causes losses in GOP over the forecast period. As shown
in Figure IV-1, the three studies forecast significant declines in GOP from the reference
case, although with some variations, both in total and year-by-year.
Carbon restrictions will create substantial job losses due to reduced revenues
resulting from higher fuel and electricity costs. This is primarily a result of higher carbon
prices causing higher fuel costs for industry and higher costs to industry to comply with
the emissions limits. The major causes of job losses are lower industrial output due to
higher energy prices, the high cost of complying with required emissions cuts, and
greater competition from overseas manufacturers with lower energy costs.
These job losses are net of any new jobs that may be generated by increased
spending on renewable energy, energy efficiency, clean coal technologies, or other
programs. Figure IV-2 shows that the ACCF/NAM estimates of job losses are less than
those from NBCC and Heritage until 2030, when the opposite is the case. In general,
NBCC forecasts the most jobs losses from ASCEA.
43
Figure IV-1
Likely Impact of ASCEA on U.S. GOP
0.00%
-0.50%
-1.00%
-1.50%
-2.00%
-2.50%
II NBCC i!!lACCF-NAM Heritage

Source: Management Information SelVices, Inc., 2010.
Figure IV-2
Likely Impact of ASCEA on U.S. Jobs
~
-500 .
III
'tl
s:::
::l -1,000
::J
o
..c:
:!::- -1,500
III
..c
o
.., -2,000 +------
-2,500 " - - - - - - - - - - - - - - - - - - - -
III NBCC III ACCF-NAM III Heritage

Source: Management Information SelVices, Inc., 2010.
44
ASCEA will cause significant household income losses resulting from higher
payments for fuels and electricity. Higher energy prices will have ripple impacts on
prices throughout the economy and will impose financial costs that increase every year.
Although ASCEA (unlike the EPA Endangerment Finding) provides some consumer
relief for electricity and natural gas customers during the early years, higher energy
prices would ultimately impose a financial cost of up to $1,250 per household by 2030 -
Figure IV-3.
FigurelV-3
Household Income Losses Resulting From ASCEA
$0 -
"'0 -$200
'0
.r: -$400
Ql
Ul
:::I
0 -$600
J:
...
Ql -$800
..,.
11.
co -$1,000 -
0
0
N -$1,200
-$1,400 ..l- _
I!l NBCC r;lACCF-NAM

IV.C. Impacts on Energy Expenditures
By 2030, ASCEA could cause gross U.S. energy expenditures to increase by

nearly 30 percent - Figure IV-4. These significant increases reflect the impacts of
increased fuel costs and' changes to energy conversion technology infrastructure costs.
The estimates shown in the figure include consumer price rebates for electricity, natural
gas, and home heating oil purchases based on partial return of free allowance
allocations - none of which pertain to the EPA Endangerment Finding.
45
Figure IV·4
Forecast Increase in U.S. Energy Expenditures Resulting From ASCEA
Projected US Energy Expenditures

$2,200
$2,000
$1,800
Source: American Council for Capital Formation and the National Association of Manufacturers.
46
V. STATE IMPACTS
V.A. Impacts of CO 2 Restrictions on Individual States
The states with the highest CO 2 emissions per dollar of economic activity will
face the greatest difficulties and highest costs in reducing emissions. As shown in
.Figure V-1 and Table V-1, states in the south and the Midwest will be especially
impacted. 38
Figure V-1
Relative CO 2 Emissions Per State
Metric Tons of Emissions per $1 Million

in Stote Economic AcUvily
III least: 48- 500
III Most: 501-2305
Source: U.S. Environmental Protection Agency, 2009.
38Figure V-1 is from U.S. Environmental Protection Agency, "Energy CO 2 Emissions by State," 2009;
Table V-1 is from American Petroleum Institute, "Waxman Markey Impact," October 2009.
47
Table V-1
C0 2 Emissions Ranked by state
totelt:(\ ErnlM1oJ11l TotlillCOJ"

Rmlk ('0" MMl CO» Rank Stnte $MlillfDllSofGSP
1 118M! -1--\~-mfng 2.3)6.41
m.64 1;~L,2KMm~\\fiEt\fr rWntai-;<tift:::j0i0ljf;ttIY~fi2.132.641$
<3 flbrUl Dakota 2,016.01
Vt!t:4-tt~:Mbllt:ma 1.213.64
b A",ko 1,jf)B64'
-/erfjf0.~;dJ.lJul3lane 1.138.84
1 Y..antu"l~ 1t]B2,OO
;6)3\;_Ej~~IMrllsna 910.14
9' Alsoom-a 930.00
ti¥01:;!-~lltd~k-CarolrnB~[~¥Jbt}i1ib~;Yl§:I53;61;?
13 l(antud~~ 1Ii2.16
:&f;}14g±~~B&lurf\~~W:~&%lf;Ji~:it~1'~i;t;±41Mi
:I.fj Alabama :1A1.10
;Y£jSEi~tJ.JSTBa'J;I~~~1~%2~I~E!j11~:m-£¢.~;
11 \i1rg1nls 12B,ro
I:jB~BI~fl~e 121.2:>
19 \'Yast VIrginia 113,13
;tl\2:)f,\~WrSWlBin :110.63
21 Ofdahoma ::106,09
~2~\lJ*,fimWtta ~F!!(J?t~1~I%t¥~~1OO.65~: ;rt22Ii~~A:lf'lnBjtianla 66G.44
23 Arlrona 91,11 23 Tenn~eel 6EiEi.16
wfl24~1m0Jik=mda~A,?&~~t~~~R;iijf:1t_g¢.34-0 ~24?;;~!\lISWisln;'~y\'ff~lt~~R!;;'~~1fflib'1tUl4;ill
25 Sooth Calc.lina 87.24 26 MBlna 009.83
~z~Bi€l\'k6h Ington 86.6"1 ~iQB:~~I~Dr~a 605.73
21 r.'las.sac.tlltBi3'tts 84.83 21 Mithlg;m 003,00
k\112B~m~l)'land· 83.91 ~121l\Itj:Ari!ooa 448.16
29 loNe 19.61 29 NENfdg 446•.12
~~;oot~12i~1'B39 72.413 ZM~O~~fibrth (:ar~ll1\a !'f1~~%~~J:442J3aw;
31 Utah 613.00 31 t."tibracb .at3Ei.68
&t132~!i,~.f3S15slwl 63.58
33 \~lng 62,f.H
:~;~~~Arlen611B 00.64 ~~tf·34t~Hewali 4.M9
36 New M:exk:a 68,00 .3Ei South Dakota 421'3.66
;~allt$;tltl~~e 49.68 &t1~iS;~~Ejt:frd3 387.26
31 tla'th Dgfcta 49,iG 31 JlWN Hampl6hlre 3B6.23
;.&3B·f&~i\lasr~;~!:i~\i&~f\;~jYitE4·0fl4fr&l~1~;~ 366..31
00 Conne:tk:ut 43.:?(I
rZ?m-Wl»fjQbl'Elika 43.10
41 Oregon 42,S7
i£1;42'3-&~-Mi::llitana 36.27
43 Hawaii 23.C6
f!&44~lJjlrJlalne. 22.00
46 t~f!H Hampshlla 21.21
'tf:~TL&~:II:arll§~H$Yi~%21ik#;_:1£tl{i~"f:~::~ j:;!:4i3 ':&f~!;&:1il8ssachU99lt& 260,29
41 Rhod.\ll3land 257;62
fsit4IitK0t:fktJth DalQe 13.19 }£{4B\jI,j\Caltfomla 240.82
4!'£1 r.lhOOe! IsJ.:.nd 11..23 49 Cbnnectlcut '23.60
;t}OO~Bl;1'\i'armDl'itk~~*~f7;j~;1~/*1t,Xr]f}!+Jk~1/1J~1.gS;
51 ~a1rlctO'f Coll/nlbia 3.94 61 46.21
Source: American Petroleum Institute, 2009.
48
As noted in Chapter III, an August 2009 Heritage Foundation study found that
ASCEA would burden families with thousands of dollars per year in direct and indirect
energy costS. 39 The report forecast severe consequences -- including greatly increased
energy costs, millions of jobs lost, and declining household incomes -- if Congress
enacts ASCEA. It found that the Bill will affect each state differently, since some states
are more energy-intensive than others (Table V-1), and because some rely heavily on
manufacturing. Nevertheless, the costs in every state are significant, as are increases
in electricity and gasoline prices. Moreover, the projected losses in jobs and Gross
State Product (GSP) illustrate how each state's economy will affected by ASCEA. The
study produced 50 state-by-state breakouts of the impact that ASCEA would have on
jobs and the economy -- Table V-2
The impacts of ASCEA on state GSP and jobs were also estimated in the
ACCF/NAM study - Tables V-3 and V-4. The details differ somewhat from the Heritage
Foundation state estimates. For example, the Heritage estimates are given as annual
averages in each state, whereas the ACCF/NAM findings are given as high and low
impact estimates for 2020 and 2030. Nevertheless, the bottom line in both studies is
that the impacts in each state will be significant and negative, and some states will be
affected more adversely than others.
39 DavidKreutzer, PhD., Karen Campbell, PhD., William W. Beach, Ben Lieberman, and Nicolas Loris,
Impact of the Waxman-Markey Climate Change Legislation on the States, op. cit..
49
Table V-2
Estimated Impact of ACESA on the States
Average r....on.,1
fncome Loss. A""mg. GDP Avenge Non"
2012-2035 Lo...2012-2035 Fann lot> Loss,
(in Millions) (In Millions) 2012-2035
50
Table V-3
Loss in State GDP Resulting From ASCEA
(2007 Dollars)
~
!;If
I Ql i'
Slate 2020 2030 2020 2030

Alabama ·444 ·4676 ·762 -6379
Alaska -100 -1051 -171 -1434
Arizona -662 -6976 ·1138 -9517
Arkansas -256 ·2701 ·440 -3685
California ·4954 ~5220B -8513 -71226
Colorado -638 -6722 -1096 ·9171
Connecticut -581 -6124 -999 -8355
Delaware -236 -2487 w405 '3393
DC -163 -1715 -280 -2340
Florlda -1955 -20607 -3360 ·28113
Geomla ·.f085 -11432 -1864 -15597
Hawall -158 -1665 -271 -2271
Idaho -141 -1483 -242 -2024
IllinoIs -1676 -17665 -2881 -24100
Indiana -704 -7414 -1209 -10115
Iowa -347 -3657 -596 -4990
Kansas -310 -3262 -532 -4450
Kentucky -418 -4402 -718 -6005
Louisiana -483 ~5089 -830 -6943
Maine -992 -10457 -1705 -14267
Maryland -719 -7572 -1235 -10331
Massachusetts -132 -1392 -227 -1899
Mkhigan -1144 -12058 -1966 -16450
Minnesota -703 -7407 -120B -10105
MississiPpi -234 -2467 -402 -3365
Missouri -638 -6122 -1096 ·9171
Montana -85 -9(10 -147 -1228
Nebraska -71 -750 -122 -1023
Nevada -190 -2066 -337 -2819
New Hampshire -163 -1722 -281 -2349
New Jersey -1291 -13600 -2218 -18554
New Mexico -322 -3397 -554 ·4635
New York -2958 -31171 -5083 -42526
North Carolina -1057 -11142 -lB17 -15201
Narth Dakota -213 -2242 -366 -3059
Ohio -1315 -13860 -2260 -18909
Oklahoma -340 -3580 -584 -4884
Oregon -446 -4697 -766 -6407
Pennsvlvanla -1439 -15162 -2472 -20685
Hhode Island -129 -1355 -221 -1848
South Carolinil ·417 -4399 -717 -6001
South Dakota -92 -969 -158 -1322
Tennessee -680 -7164 ~11G8 -9774
Texas -2836 ~29887 -4874 -40775
Utah -265 -2791 -455 -3807
Vermont -70 -736 -120 -1004
Virginia -1033 ··108B3- -1775 -14847
Washington -821 -8653 -1411 -11805
W€st Vlrp;lnla ·150 -1586 -259 -2163
Wisconsin -647 -6815 -1111 -9297
Wyoming -67 -710 cl16 -968
Source: American Council for Capital Formation and the National Association of Manufacturers, 2009.
51
Table V-4
Jobs Losses by State Resulting From ASCEA
(Thousands of jobs)
, ,llm_1
"l'Jl '.Jl! HWifii',' .
State 2020 2030 2020 2030
Alabama 0.1& -27.94 -1.25- -38.05
Alaska 0.02 -4.28 -0.17 -5,&2
Arizona 0.13 -29.61 -1.26 -40.32
Arkansas 0.10 -17.10 -0.70 -23.28-
California 1.26 el21.27 -13.76- -301.<l6
Colorado 0.16 -26.32 -1.12 -35.85
Connecticut 0.12 -17.28 -0.8.2 -23.53
Delaware 0.03 -4.49 -0.19 -6.12
DC 0.02 -3.23 -0.14 -4.40
Florida 0.55 ~90.63 ~3.79 -123.4:3
Geori1:1a 0.29 -47.72 -2.00 -64.99
HawaII 0.05 --8.14 '-0.32 -11.09
Idaho 0.05 -],38 ~O.31 ·10.05
IHlllOis 0.57 -86.36 -3.97 -120.34
IndIana n.2B -43.51 -1.9S -59.26
Iowa 0.15 -24.02 -1.01 -32.72
Kansas 0.13 -21.42 -0.90 -29.17
Kentucky 0.17 -25.'71 -1.15 -35.01
Loulsfana 0.15 -26.07 -1.07 -35.50
Maine O.OS -6.59 -0.31 -8.98
Marvland 0.18 -30.44 -1,27 -41.45
Massa.chusetts 0.22 -32.08 -1.53 -43.70
Michigan 0.43 -66.66 -2.99 -90.7'9
Minnesota 0.25 -42.09 -1.77 -57.32
Mississippi 0.11 -15.59 ~0.74 ~22.60
Missouri 0.26 -43.26 -1.82 -58.91

Montana 0.03 -4,96 -0,21 -5.76
Nebraska 0.09 -14.42 -0.61 -19.63
Nevada 0.08 -12,72 -0.54 -17.32
New Hampshire 0.05 -6,9.7 ·0.33 -9.50
New Jersev 0.29 -50.70 -2.03 -69.05
New Mexico 0.06 -9,33 -0.40 -12.71
New York 0.62 -10l.L26 -4.32 -147A4
North Carolina 0.27 ~44.87 ~1.88 -61.11
North Dakota 0.03 -5.31 -0.22 "7.23
Ohio 0.51 -79".76 ~3.58 -·108.63
Oklahoma 0.13 -:22.10 -0.91 -30,1{}
oregon 0.13 -23.45 -0.93 -31.94
p'ennsylvania OAl ~71.58 -2.86 -97.49
Rhode Island 0.04 -5.29 .0.25 -7.2'1
South Carolina 0.13 -:21.02 -0.S8 -28.63
South Dakota 0.04 -6.42 -0.27 -8.7·4
Tenn€ss:ee 0.25 -38.20 -1.71 -52.03
Texas: 0.B5 -144.50 -5.93 -196,93
Utah 0.08 -13.31 -0.56 -18.12
VeImom: 0.02 -3.36 -0.16 -4.57
Virginia 0.25 -4VIO -1.73 -56.39
Washington 0.24 -41.46 -1.64 -56.46
West. V!n>il1fa 0.05 -8.21 -0.34 -11.1&
Wisconsin 0.27 ·41.66 -1,87 -56,74
Wyoming 0.02- -2.87 -0.12 -3.'91
Source: American Council for Capital Formation and the National Association of Manufacturers, 2009.
52
V.B. State Concentrations of the Black and Hispanic Populations
Table V-5 Indicates that the Hispanic population, while growing rapidly in both
absolute and percentage terms, is becoming gradually more dispersed geographically
throughout the U.S.:
• In 2000, about 86 percent of the Hispanic population was

concentrated in ten states; by 2025, only 82 percent of a much
larger Hispanic population will be residing in these states.
• In 2000, more than 73 percent of the Hispanic population was
concentrated in five states - California, Texas, Florida, New York,
and Illinois; by 2025, only 70 percent of a much larger Hispanic
population will be residing in these five states.
Table V-6 Indicates that the Black population, while growing rapidly, is becoming
gradually more concentrated geographically:
• In 2000, about 59 percent of the Black population was concentrated

in ten states; by 2025, nearly 66 percent of a larger Black
population will be residing in these states.
• In 2000, 36 percent of the Black population was concentrated in
five states - New York, Texas, Florida, California, and Georgia; by
2025, 42 percent of a larger Black population will be residing in
these five states.
Table V-5
Concentration of the Hispanic Population by State, 2000 and 2025
Percent of Total U.S. Hispanic Population

2000 2025
California 34.0 34.6

Texas 18.7 16.7
Florida 7.6 8.0
New York 8.9 7.0
Illinois . 4.0 3.7
Arizona 3.4 3.4
New Jersev 3.3 3.0
New Mexico 2.3 2.0
Colorado 1.9 1.7
Massachusetts 14 1.5
Total 85.5 81.6

Source: U.S. Bureau of the Census and Management Information Services, Inc, 2010.
53
Table V-6
Concentration of the Black Population by State, 2000 and 2025
Percent of Total U.S. Black PODulation

2000 2025
New York 9.3 9.3

Texas 7.2 8.9
Florida . 6.6 8.2
California 6.8 7.9
Georaia 6.4 7.6
North Carolina 4.9 5.2
Illinois 5.3 5.0
Maryland 4.2 4.8
Virginia 4.0 4.5
Louisiana 4.1 4.2
Total 58.8 65.6

Source: U.S. Bureau of the Census and Management Information Services, Inc., 2010.
V.C. Impacts on States Where Black and Hispanic Populations are Concentrated
African Americans and Hispanics are thus disproportionately located in certain

states such as California, Texas, Florida, New York, and Illinois, and their populations
will increase over time. For the seven states with the highest concentrations of
Hispanics and African Americans - Arizona, California, Florida, Georgia, Illinois, New
York, and Texas -- ASCEA would likely have the following impacts.
In Arizona, over the 2012-2035 timeframe, on average ASCEA would annually:
• Reduce GSP by $5.7 Billion

• Reduce personal income by $2.1 billion
• Destroy 24,500 jobs
• Increase electricity prices by $620 per household
• Increase gasoline prices by $0.62 per gallon
In California, over the 2012-2035 timeframe, on average ASCEA would annually:
• Reduce GSP by $41.5 billion

54
In Florida, over the 2012-2035 timeframe, on average ASCEA would annually:

In Georgia, over the 2012-2035 timeframe, on average ASCEA would annually:

In Illinois, over the 2012-2035 timeframe, on average ASCEA would annually:
• Reduce GSP by $14 billion

In New York, over the 2012-2035 timeframe, on average ASCEA would

annually:

In Texas, over the 2012-2035 timeframe, on average ASCEA would annually:

55
VI. POPULATION AND DEMOGRAPHIC TRENDS
VI.A. Definitions of Race and Ethnicity
The classification of individuals by race and ethnicity is complex and

controversial, and the concepts of race and ethnicity lack precise and universally
accepted definition. Their economic and social significance depend on a variety of
factors, including how individuals identify themselves and how others identify and treat
them. Most of the primary data utilized in this report were obtained from Federal
government statistical sources, and these are collected through household surveys and
decennial censuses in· which respondents are asked to identify their race in one
question and whether or not they are of Hispanic origin in a separate question.
The basic racial categories used by the U.S. Bureau of the Census are American
Indian or Alaska Native, Asian or Pacific Islander, Black, and White. The Bureau
identifies Hispanic origin as an ethnicity, and Hispanics may be of any race. Here we
use the following five categories:
• Hispanic -- which may be ofany race

• White, not of Hispanic origin
• Black
• Asian, including Pacific Islander
• American Indian, including Alaska native (Alaskan Eskimo and
Aleut)
African Americans represent a relatively homogeneous demographic category,

while Hispanics are highly diverse. Hispanics are usually disaggregated into persons of
Mexican, Puerto Rican, Cuban, and Other Hispanic Origin; the major groups in the latter.
category include Dominicans, Salvadorans, Guatemalans, Nicaraguans, Hondurans,
Panamanians, Costa Ricans, Colombians, Ecuadorians, Peruvians, Chileans, and other
Central and South Americans. Mexicans are the largest Hispanic group, comprising
about 65 percent of the total, Puerto Ricans are the second largest, comprising about
nine percent, and Cubans are the third largest, accounting for about four percent of U.S.
4o
Hispanics.
VI.B. Black and Hispanic Populations
African Americans have been counted as a separate demographic group since

the first U.S.
census was conducted in 1790, and we thus have a good historical record of the Black
population. However, Hispanics have not always appeared in the census as a separate
'OPew Hispanic Center, "Country of Origin Profiles, October 2009.
56
ethnic group.41 The Census Bureau makes population projections based on a high,
middle, and low series, and on several variations within these series, and the major
factors affecting future population growth are projected fertility rates, projected survival
rates, and future net immigration. Variations in the assumed values of these variables
can significantly affect the projections, and, obviously, the further into the future, the
more the projections can vary. In this report, all of the population projections used are
based on the Census Bureau's "middle" series.
Figure VI-1 indicates that the growth in the Hispanic population is the salient U.S.
demographic development, both historical and forecast: 42
Figure VI-1
Percent Hispanic of the Total U.S. Population: 1970- 2050
Source: U.S. Census Bureau, 2010.
• In 1970, less than five percent of the U.S, population was Hispanic.
• In 2000, about 13 percent of the U.S, population was Hispanic.
41 Forexample,the 1930 census contained a cate90ry for "Mexican," in the 1940 census the classification
was "persons of Spanish moiher tongue," in the 1950 and 1960 censuses the category was titled
"persons of Spanish surname." The 1970 census asked persons about their "origin" and respondents
could choose among several Hispanic origins listed on the questionnaire. In the 1980 and 1990
censuses persons of "Spanish/Hispanic" origin reported as Mexican, Puerto Rican, Cuban or other
Hispanic, and the 1990 census tabulated information for 30 additional Hispanic-origin groups.
42 U.S. Census Bureau, "Hispanics in the United States," 2009.
57
• In 2030, about 20 percent of the U.S, population will be Hispanic.
• In 2050, about 25 percent of the U.S, population will be Hispanic.
• In recent years, about one of every two persons added to the U.S.
population was Hispanic.
Hispanics have displaced African Americans as the largest U.S. minority group,
and their numerical dominance will continue to increase. The portion of the population
that is non-Hispanic White declines from 80 percent in 1980 to about 50 percent in
2050. The portion of the U.S. that is Black will remain at about 13 percent over the next
several decades.
VI.C. State Black and Hispanic Population Trends
The portions of the populations of the seven states of interest here comprised of
African Americans and Hispanics will increase through 2030, as shown in Figures VI-2
through VI-8.
Figure VI·2
Portions of the Arizona Population Comprised ofAfrican Americans and
Hispanics
35%
30%
25%
20%
15%
10%
5%
0%
2000 2015 2025 2030
iii Black III Hispanic

Source: U.S. Census Bureau and Management Information Services, Inc., 2010.
These figures reveal some important trends:
• In each of the seven states, both the Black percentage of the

population and the Hispanic percentage of the population increases
through 2030.
58
• In each of the seven states, both the Slack percentage of the
population and the Hispanic percentage of the population is higher
in 2030 than in 2000. 43
• As may be expected from the national trends, the increase in the
Hispanic population is especially pronounced. For example:
-- The percent of the Arizona population comprised of Hispanics
increases from 22 percent in 2000 to 35 percent in 2030
-- The percent of the California population comprised of Hispanics
-- The percent of the Florida population comprised of Hispanics
-- The percent of the Texas population comprised of Hispanics
increases from 30 percent in 2000 to 40 percent in 2030.
• The rate of growth of the Hispanic population is much higher than
that of the Slack population, and even in states such as Illinois and
New York where in 2000 African Americans outnumbered
Hispanics, by 2030 the reverse is true.
• Trends in these states reflect the fact that the U.S. is becoming a
"minority majority" nation, and by 2030 in both California and Texas
African Americans and Hispanics combined will comprise a majority
of the popu lation.
• By 2030, in Arizona, Florida, Georgia, and New York, African
Americans and Hispanics combined will comprise 40 percent or
more of the population.
'3Except for African Americans in California.
59
Figure VI-3
Portions of the California Population Comprised of African Americans and
Hispanics
45% , - - - - - - - - - - - - - - - - - - - -
40% f--_.
35% +---------
30%
25%
20%
15% +---
5%
0%
2000 2015 2025 2030
III Black iii Hispanic

Source: u.S. Census Bureau and Management Information Services, Inc., 2010.
Figure VI-4
Portions of the Florida Population Comprised of African Americans and
Hispanics
30% -----
25%
20%
15%
10%
5%
0%
2000 2015 2025 2030
iii Black iii Hispanic

Source: u.S. Census Bureau and Management Information Services, Inc., 2010.
60
Figure VI-5
Portions of the Georgia Population Comprised of African Americans and
Hispanics
40%
35%
30% -
25%
20%
15%
10%
5%
0%
2000 2015 2025 2030
III Black iii Hispanic

Figure VI-6
Portions of the Illinois Population Comprised of African Americans and Hispanics
20% ._----------_._-----------
18% - j - - - ' - - - - - - - - - - - - - - - - - - -
16%
14%
12%
10%
8%
6%
4%
2%
0%
2000 2015 2025 2030
III Black III Hispanic

61
Figure VI-7
Portions of the New York Population Comprised of African Americans and
Hispanics
2015 2025 2030
III Black III Hispanic

Figure VI-8
Portions of the Texas Population Comprised of African Americans and Hispanics
45% , - - - - - - - - - - - - - - - - -
40%
. 35%
30% . j - - - = = - - - -
25% . j - - -
20%
15% -1--
10%
5%
0%
2000 2015 2025 2030
II Black II Hispanic
62
VII. IMPACTS OF THE EPA ENDANGERMENT
FINDING ON LOW-INCOME PERSONS, AFRICAN
AMERICANS AND. HISPANICS
VII.A. Economic Status of African Americans and Hispanics
VII.A.1. Income, Earnings, and Wealth
The average (real) income of American families has fluctuated over the past four
decades, but White income has remained significantly higher than Hispanic income or
Black income: 44
• Black incomes are only about 65 percent that of the U.S. average,
and these disparities will be exacerbated if the EPA Endangerment
Finding is implemented.
• Hispanic incomes are only about 74 percent that of the U.S.
average, and these disparities will be exacerbated if the EPA
Endangerment Findirig is implemented.
• The income of White families is nearly twice that of Black and
Hispanic families.
• The average weekly earnings of African Americans and Hispanics
are significantly below those of Whites.
• The wage gap between Black workers and White workers has
remained relatively constant over the past several decades.
• The average wage gap between Hispanics and African. Americans
and Whites has widened over the past two decades -- due, in part,
to the widening gap in educational attainment between Hispanics
and the rest of the population.
Incomes and earnings provide a measure of the economic differences between

demographic groups. Another measure is the poverty rate and, while there are several
different measures of this rate, here we use the Federal government's official
definitlon. 45 Some of the disparities in poverty rates between the demographic groups
can be explained by differences in factors such as age distribution, family structure, and
educational attainment. However, substantial differences between groups exist among
individuals with similar characteristics. For example, in 2008: 46
44 Databased on 2009 and 2010 Census Bureau sources.

45See the discussion in Constance F. Citro and Robert T Michael, eds. Measuring Poverty: A New
A,E,Proach, Washington, D.C.: National Academy Press, 1995.
4 "Who is Poor?" Institute for Research on Poverty, University of Wisconsin -- Madison, September 2009.
iRP developed the poverty estimates using the officiai Census definition of poverty.
63
• The overall U.S. poverty rate was 13.2 percent
• For non-Hispanic Whites, the poverty rate was 8.6 percent
• For Hispanics it was 23.2 percent
• For African Americans it was 24.7 percent
• Thus, the poverty rate for African Americans is slightly higher than
that for Hispanics, and the poverty rates for African Americans and
Hispanics are nearly twice the national average and nearly three
times as high as the rate for non-Hispanic Whites.
Further:
• The poverty rate for African Americans and Hispanics has

historically been about three times that of Whites.
• Poverty rates among the elderly are considerably higher for African
Americans and Hispanics than for Whites.
• While poverty rates are relatively high for all children in single-
parent families maintained by women, they are significantly higher
for Hispanic and Black children than for White children in such
families.
• Among persons aged 25 and over without a high school degree,
poverty rates for African Americans and Hispanics are well above
those of Whites.
Incomes, earnings, and poverty rates thusindicate that African Americans and
Hispanics are
significantly less well off than Whites:
• The net worth of White households is nearly five times that of Black
and Hispanic households. 47
• Even among households with similar monthly incomes, net asset
holdings are far higher among Whites than African Americans or·
Hispanics.
VII.A.2. The Economic Vulnerability of African Americans and

Hispanics
By virtually every measure of economic well being and security, African

Americans and Hispanics are worse off than Whites, and they tend to be especially
47Net worth is defined as the sum of the market value of the assets owned by household members minus
liabilities (secured and unsecured). Assets not Included are the cash value of life insurance policies,
equities in pension plans, and value of home furnishings and jewelry.
64
vulnerable to the economic downturn and job losses likely to' result from implementing
the EPA CO 2 restrictions. 48 For example:
• Black and Hispanic family incomes are less than two-thirds the
overall U.8. average, and this disparity will likely be exacerbated by
implementation of the EPA C02 restrictions
• Black and Hispanic family incomes are significantly less than White
family incomes.
• There is a large gap between the wages of Whites and those of
African Americans and Hispanics, which has remained relatively
constant over the past four decades.
• Poverty rates for African Americans and Hispanics have
consistently been much higher than those for Whites, and are
currently more than three times as high.
• The disparity in poverty rates among elderly Black and Hispanics
and their White counterparts is especially marked.
Minority families have assets that are, on average, about 20 percent of those of
White families, and they thus have little to cushion themselves from the economic
downturn and job losses that will likely result from implementing the EPA Finding:
• Whites have, on average, a net worth that is nearly five times that
of African Americans and Hispanics, and Whites are thus much
better prepared to cope with economic downturns and periods of
unemployment.
• Whites own a much broader range of financial assets than African
Americans and Hispanics, and these assets are more than three
times as large of those owned by African Americans and Hispanics.
This also gives Whites a much better capacity to cope with
downturns in the economy.
• African Americans and Hispanics are much less likely than Whites
to have discretionary income, and the amount of discretionary
income they have is less. 49
• African Americans and Hispanics still suffer from the "last hired, first
fired" syndrome, and those who are employed are generally less
secure than their White counterparts. Thus, the job losses resulting
from implementing the EPA regulation will be disproportionately felt
by African Americans and Hispanics
• African Americans and Hispanics are disproportionately
concentrated in jobs that pay the minimum wage or below.
"Data in this section were obtained from the U.S. Department of Labor, the U.S. Census Bureau, and the
Federal Reserve Board, 2010.
"Discretionary income is estimated by first subtracting Federal,. state, and iocal income, payroil, and
property taxes from household income to yield disposable income. Next, basic, necessary household
expenses are subtracted from disposable income. The resuiting figure is muitiplied by 0.75 to yield a
conservative estimate of discretionary income.
65
• African Americans and Hispanics have a much lower rate of home
ownership than do Whites.
• About 20 percent of African Americans lack health insurance and
about one-third of Hispanics lack health insurance.
VII.A.3. Implications for African Americans and Hispanics
The impacts of EPA CO 2 restrictions would seriously affect U.S. consumers,

since all energy-containing products and services in the average consumer's' market
basket would increase markedly in price. The impacts will be especially harmful to low-
income persons and minorities. For example, U.S. African Americans and Hispanics
are vulnerable and will experience disproportionately large negative effects:
• The unemployment rates for African Americans and Hispanics are

nearly twice the national average, and those who are employed are
generally less secure than 'their non-Hispanic counterparts. Thus,
the job losses resulting from the EPA regulation are likely to
disproportionately harm African Americans and Hispanics.
• Black and Hispanic incomes are only about two-thirds to three-
quarters that of the U.S. average, and these disparities will be
exacerbated.
• Black and Hispanic families have assets that are, on average,
much smaller than those of non-Hispanic White families, and
therefore they have little to cushion themselves from the impending
economic and job losses.
• African Americans and Hispanics have relatively little discretionary
income, and are especially vulnerable to the income losses that will
result from the EPA Finding.
• Both African Americans, and Hispanics are disproportionately
affected by energy price increases and' resulting economic
disruptions, as was illustrated during the "energy crisis" of the
1970'S.50 "
It is therefore especially important to estimate the impact of the EPA proposed

regulation on African Americans and Hispanics. They remain economically
disadvantaged minorities and thus highly vulnerable to negative economic impacts.
Further, Hispanics are the largest U.S. minority group and are also the most rapidly
growing demographic group. In addition, as noted, the Black and Hispanic populations
are heavily concentrated within a relatively small number of states. A previous study
estimated the potential impact of the McCain-lieberman Bill on Hispanics at the national
50See Management Information Services, Inc" Impacts on Hispanics of Federal Electric Utility Multiple
Emissions Legislation, Washington, D.C., April 2003,
66
level;51 here we focus on the impact of the EPA rule on African Americans and
Hispanics nationally and in Arizona, California, Florida, Georgia, Illinois, New York, and
Texas.
VII.A.4. Implications for Energy Burdens on Low Income Groups and

Minorities
The "energy burden" is defined as the percenta~e of gross annual household

income that is used to pay annual residential energy bills. 2 The energy burden concept
can be used to compare energy expenditures among households and groups of
households. 53 For example, consider the case where one household has an energy bill
of $1,000 and an income of $10,000 and a second household has an energy bill of
$1,200 and an income of $24,000. While the first household has a lower energy bill
($1,000 for the first household compared to $1,200 for the second), the first household
has a much higher energy burden (10 percent of income for the first household
compared to five percent of income for the second).
Energy burden is a function of income and energy expenditures. Since

residential energy expenditures increase more slowly than income, lower income
households have higher energy burdens. High burden households are those with the
lowest incomes and highest energy expenditures.
As shown in Figure VII-1, in 2001:
• . Families earning more than $50,000 per year spent only four
percent of their income to cover energy-related expenses.
• Families earning between $10,000 and $25,000 per year (29
percent of the U.S. population) spent 13 percent of income on
energy.
• Those earning less than $10,000 per year (13 percent of
population) spent 29 percent of income on energy costs.
• Thus, for 42 percent of households - mostly senior citizens, single
parents, and minorities - rising energy costs force hard decisions
about what bills to pay: Housing, food, education, health care, and
other necessities.
51 Potential
Impact on Hispanics of S. 139, the McCain-Lieberman Bill. Report prepared for Americans for
Balanced Energy Choices, Management Information Services, Inc., Washington, D.C., September 2003.
52The individual household energy burden is calculated for each household and then averaged within
incomelorigin categories. See the discussion in Applied Public Policy Research Institute for Study and
Evaluation, LlHEAP Energy Burden Evaluation Study, report prepared for the Office of Community
Services, U.S. Department of Health and Human Services, July 2005. .
"The concept is often used in the Low Income Home Energy Assistance Program (L1HEAP) to estimate
required payments. The statutory intent of L1HEAP is to reduce home heating and cooling costs for low-
income househoids.
67
The energy burden is even more discriminatory for low-income African
Americans and Hispanics. For example:
• The energy burden for Black households with annual incomes less
than $10,000 is four times that of the overall energy burden for non-
Hispanic Whites
• The energy burden for Hispanic households with annual incomes
less than $10,000 is more than three times that of the overall
energy burden for non-Hispanic Whites
• The energy burden for Black households with annual incomes less
than $10,000is nearly ten times that of the energy burden for non-
Hispanic White households with annual earnings of more than
$50,000 per year
• The energy burden for Hispanic households with annual incomes
less than $10,000 is eight times that of the energy burden for non-
Hispanic White households with annual earnings of more than
$50,000 per year
• Across all household income categories, the energy burden for
Black and Hispanic households is greater than that for non-
. Hispanic White households.
FigureVII-1
Household Energy Expendilures 42%01

vs.lncome Americans
shoulder
major energy
35% -,-----------------;,L- burden
30% + - - - - - - I - - - - - - - - t - I
25% + - - - - - - 1 - : - - - - -
20% +-------1------
15% + - - - - - 1 - - - - -
10% +-----+-1
0% -j---.JL---'--L....._ ....._...l.
IDOver $50,000 D $10,000 - $25,000 D Under $10,000 I

Source: American Association 01 African Americans in Energy.
68
When families with income constraints are faced with rising costs of essential
energy, they are increasingly forced to choose between paying for that energy use and
other necessities (also often energy-sensitive) such as food, housing, or health care.
Because all of these expenditures are necessities, families who must make such
choices face sharply diminished standards of living.
Cost increases for any basic necessity are regressive in nature, since
expenditures for essentials such as energy consume larger shares of the budgets of
low-income families than they do for those of higher-income families. Whereas higher-
income families may be able to trade off luxury goods in order to afford the higher cost
of consuming a necessity such as energy, low-income families will always be forced to
trade off other necessities to afford the higher-cost good.
Tables VII-1 and VII-2 show that households in the lowest-income classes spend
the largest shares of their disposable income to meet their energy needs. For example,
of the 8.7 million American households earning less $10,000 per year in 2008, 60
percent of the average after-tax income was used to meet those households' energy
needs. Among the highest earners, the 56 million households making more than
$50,000 per year, only 10 percent of the average after-tax income was spent on those
households' energy needs. The national average for energy costs as a percentage of
household income is about 12 percent. 54
Table VII-2 shows that energy costs as a percentage of after-tax income doubled
between 2001 and 2009, from a national average of 6.0 percent to 11.9 percent. For
households earning less than $10,000, this has meant an increase of $1 ,525 in energy
costs. Thus, in 2008 just the increase in energy prices since 2001 consumed 30
percent of the after-tax income for households in this category. This impact is much
less pronounced in other income classes, as can be seen from Table VII-3. However,
while the share of disposable income that is consumed by the increase in energy prices
declines to 6.5 percent for the average household, this is still a significant cost in
absolute terms - it amounts to an extra $3,403 in energy expenditures per household.
These tables confirm the extremely regressive nature of rising energy prices, and
increased energy costs have further encroached upon the already-strained resources of
the lowest-income households. As a result, these families have experienced a rapidly
diminishing quality of life as they become increasingly unable to provide for their most
basic needs.
Across racial categories, minority families are statistically more likely to be found
among the lowest-income households. Table VII-4 shows that Hispanic, and especially
Black, families are disproportionately found in the lower income categories.
54Sources for these statistics ·are shown in the table in the following page.
69
Table VII-1
Household Energy Expenditures as a Percentage of Income, 2008
Income Less than $10K- $30K- More than Totals

Category $10K $30K $50K $50K
Households 8,689 27,247 23,649 56,417 116,000
(thousands )55
Avg. Pre-Tax $5,359 $19,809 $39,229 $109,699 $66,570
Income
Est. After-Tax $5,171 $17,491 $32,129 $77,338 $52,586
s6
Income
Residential $1,545 $1,883 $2,181 $2,729 $2,227
Energy CostS?
Transportation $1,543 $2,618 $4,932 $4,991 $4,042
8
Energy CostS
Total Energy $3,088 $4,501 $7,113 $7,720 $6,268
Cost
Energy Cost 59.7% 25.7% 22.1% 10.0% 11.9%
as % of
Income
Source: Various sources as shown in the footnotes below.
56Current Population Survey, Annual Social and Economic Supplement, U.S. Bureau of the Census,
2008.
"Effective federal tax rates for these income categories have been Interpolated from the tax rates by
income quintile as reported in Congressional Budget Office, "Effective Federal Tax Rates Under Current
Law, 2001 to 2014," (August 2004). Estimates of state income tax rates were taken from Federation of
Tax Administrators, http://www.taxadmin.orglfta/rate/ind_inc.htm!.
"Household energy consumption levels are estimated by income and race from U.S. Department of
Energy, Energy Information Administration, "Residential Energy Consumption Survey (2001 )." These
consumption data have. been updated for 2008 with residential energy price projections contained in U.S.
Department of Energy, Energy Information Administration, "Short-Term Energy Outlook," June 2008.
"Energy use estimates for transportation per household by income category and race are taken from
U.S. Department of Energy, Energy Information Administration, "Household Vehicles Energy Use: Latest
Data and Trends" (November 2005). These data have been updated for 2008 with residential energy
price projections contained in U.S. Department of Energy, Energy Information Administration, "Short-Term
Energy Outiook," (June 2008). .
70
Table VII-2
Household Energy Expenditures as a Percentage of Income, 2001
Income Less than $10K- $30K- . More than Totals

Category $10K $30K, $50K $50K
Households 9,800 28,900 23,600 47,000 109,300
(thousands 9 t
Avg. Pre-Tax $5,733 $19,707 $39,201 . $107,649 $60,488
Income
Est. After-Tax $5,532 $17,520 $32,380 $76,054 $47,396
Income6O
Residential $1,039 $1,260 $1,456 $1,836 $1,493
Energy Cost61
Transportation $524 $888 $1,674 $1,694 $1,372
Energy Cost62
Total Energy $1,563 $2,148 $3,130 $3,530 $2,865
Cost
Energy Cost 28.3% 12.3% 9.7% 4.6% 6.0%
as % of
Income
Source: Various sources, as outlined in the footnotes.
Table VII-3
Share of Income Consumed by Increase in Energy Prices Since 2001
Income Less than $10K- $30K- More Totals

Category $10K $30K $50K than
$50K
Increase in $1,525 $2,353 $3,983 $4,190 $3,403
Energy Costs
Since 2001
Increase as % of 29.5% 13.5% 12.4% 5.4% 6.5%
2008 After-tax
Income
59 2001 Survey of Residential Energy Consumption (RECS), op cit

"u .S. Congressional Budget Office, Effects of Gasoline Prices on Driving Behavior and Vehicle Markets,.
January 2008. .
61 Steven H. Wade, Price Responsiveness in the AE02003 NEMS Residential and Commercial Buildings
Sector Models, Energy Information Administration, U.S. Department of Energy, 2008.
""Short-Term Energy Outlook," op cit
71
Table VII-4
Breakdown of Income Categories by Race (2008)63
Income Less than $10K· $30K- More Totals

Category $10K $30K $50K than
$50K
White 5.8% 21.7% 19.6% 52.9% 100%
Households
Hispanic 9.2% 29.1% 25.0% 36.7% 100%

Households
Black 15.8% 30.3% 21.7% 32.3% 100%

Households
VII.B. Effects on Low-Income Groups, the Elderly, African Americans,

and Hispanics
VII.B.1. Impacts on Cost of Living and Poverty Rates
As discussed, one of the major effects of implementing the EPA CO 2 restrictions

will be to substantially increase the costs of energy and, especially, electricity. This will
impact minorities disproportionately, both because they have lower incomes to begin
with, but also because they have to spend proportionately more of their incomes on .
utilities and electricity. For example:
• Whites spend, on average, about six percent of their income on

utilities, whereas African Americans spend ten percent and
Hispanics spend seven percent.
• Whites spend, on average, about two percent of their income on
electricity, whereas African Americans spend nearly four percent
and Hispanics three percent.
As shown in Figure VII-2, there is an average income disparity of $15,870

between non-Hispanic white families and Hispanic families and an average income
disparity of $18,165 between non-Hispanic white families and black families.
6'2001 Survey of Residential Energy Consumption (RECS), op. cit.
72
Figure VII·2
Racial Income Disparities
60K ,----~----------
50K
40K
$38,252
(l)
30K
E
0
0
C 20K
10K
OK
Hispanic
White Households Households Black Households
n II
Source: U.S. Energy Information Administration, "Residentiai Energy Consumption Survey
(2001 )"
The implication of these data is that rising energy costs inflict greater harm on
minority families. Lower-income families are forced to allocate larger shares of the
family budget for energy expenditures, and minority families are significantly more likely
to be found among the lower-income brackets. Figure VII-3 shows that, in the
aggregate, Hispanic families must dedicate almost two percent more of their after-tax
income to energy expenditures than white families. Black families must dedicate almost
three percent more than white families. 64
·'Steven H. Wade, op. cit.
73
Figure VII-3
Energy Expenditures As a Percentage of After Tax Income
0.16 ,--------------~~-
0.14 ~----€":1:4.\J·~r-::%'1!r
0.12
0.10
Q.)
E 0.08
o
() 0.06
C
0.04
002
o
Hispanic
White Households Households Black Households
n III
Source: U.S. Energy Information Administration, "Residential Energy Consumption Survey (2001)"
This disparity between racial groups means that rising energy costs have a
threefold if the EPA Endangerment Finding is imple!T1ented: Their incomes will be
another job. As might be expected, these impacts on earnings and employment will
increase the rates of poverty among African Americans and Hispanics.
The poverty rate for African Americans is slightly higher than that for Hispanics,
the poverty rates for African Americans and Hispanics are nearly twice the national
average and nearly three times as high as the rate for non-Hispanic Whites. As shown
in Figure VII-4, we estimate that one of the impacts of implementing the EPA Finding
will be to, by 2025:
74
22 percent.
20 percent.
Figure VII-4
Increases in 2025 Poverty Rates Caused
by the EPA Endangerment Finding
30% , - - - - - - -
25% . 1 - - - - - - -
20% +---
15% -j--.--
10% +---
5%
0% +---
Black Hispanic
III Reference III EPA Finding

Finding. While it is possible to debate specific estimates, timelines, and percentages,
an unintended result of the EPA regulation will likely be to force millions of African
Americans and Hispanics below the poverty line -- many of whom have only recently
managed to work their way out of poverty. Further, it should also be recognized that the
welfare reforms of the 1990s and the 2007 - 2009 recession have made the social
safety net at both the Federal and state levels less comprehensive and much stricter.
This will have unfortunate implications for those African Americans and Hispanics
..
whose incomes are reduced below the poverty level over the next decade because of
the EPA action.

energy-intensive building materials, will also increase the costs of housing. This will
75
VII.B.2. Impacts on Incomes
from the EPA Endangerment Finding. The Finding will result in fuel switching away
from less costly conventional fuels,such as coal, towards more costly lower carbon
alternatives. Further, costs for all carbon-based energy sources (e.g., coal, oil, and
natural gas) will increase significantly. As discussed, these added costs will reduce
GDP, economic activity, and household incomes, and higher energy prices will increase
prices throughout the economy and will impose increased financial costs on
households.
As shown in Figure VII-5, implementation of the EPA Endangerment Finding will

reduce Black and Hispanic household incomes by increasing amounts each year:

compared to the reference case (which assumes that the EPA
income will decrease more than $630 compared to the reference
case.
• In 2025, Black median household income will be nearly $600 less
income will be about $660 less than under the reference case
• In 2035, Black. median household income will be $700 less than
will be $820 less.
• The cumulative loss in Black median household income over the
• The cumulative loss in Hispanic median household income over the
76
Figure VII-5
Losses in Black and Hispanic Median Household
Incomes Caused by the EPA Endangerment Finding
$0
-$100
-$200
~ -$300--
o
-l -$400
<II
g -$500 +-~ £''1--
(,)
.5 -$600 -I-~----
-$700 +-------------.---
-$800
-$900 - ' - - - - . - - - - - - - - - - - - - - - -
III Black [] Hispanic

VII.B.3. Impacts on Jobs and Unemployment
If implemented, the EPA Endangerment Finding would divert resources currently

used to produce goods and services into the task of obtaining energy from sources that
are less energy efficient and more costly than fossil fuels. As consumers and
businesses are forced to spend more on energy due to its higher costs, they have less
to spend on other goods and services, thus causing decreases in demand for the
quantities of goods and services produced by the economy. In addition, as the
resources are diverted to more expensive energy sources, labor productivity will
decrease. Business activity is likely to contract relative to the levels that would have
prevailed without the EPA policy-induced energy cost increases. Demand for labor will
weaken because employers need to spend less on labor in order to supply the reduced
amount of goods and services demanded by consumers.
As a result, payments to labor will decline relative to that which would have
prevailed without the higher energy costs. This will be reflected in a combination of
reduced employment, and lower wages for those workers not losing their job. 65 The
actual number of jobs that would be lost depends on whether higher-paying or lower-
paying jobs are the ones that are eliminated. In our estimates, we assumed that jobs
would be lost in equal proportions across the entire wage distribution, and estimated the
"Because these average losses in employment assume that workers absorb some of the reductions in
equiiibrium payments to labor, there is still some depression in the average salaries for those who retain
their jobs.
77
loss in "average jobs." The job estimates are inclusive of all increases in so-called
"green jobs" that may be created as a result of the proposed EPA action.
It should be noted that the economic impact of the EPA Finding will not be a
short-term phenomenon that consists of a few years of belt-tightening, after which the
economy will be on a different (lower-carbon) track. Rather, getting to the lower-carbon
future will require a long-term, sustained effort to continue increasing investments in
more costly forms of energy, and this implies that for several decades payments to
workers will remain lower than under the reference case that assumes no EPA CO 2
regulation.
The most salient characteristic of the employment status of the demographic

groups is the fact that the unemployment rates for African Americans and Hispanics
have consistently been much higher than average and than those for Whites:
• The unemployment rate for African Americans has historically been

about twice that of Whites.
• The unemployment rate for Hispanics has been significantly higher
than that for Whites, but lower than that for African Americans.
• Unemployment rates for African Americans and Hispanics tend to
increase more during recessions, and decrease less during
recoveries than do those for Whites.
• The duration of unemployment tends to be longer for African
Americans and Hispanics than for Whites
• While different levels of educational attainment explain some of the
differences in unemployment rates, they do not account for all of
the differences.
African Americans and Hispanics are also at a disadvantage in the labor force
when they are employed, for they tend to be disproportionably concentrated in lower
paid jobs. Even when standardized for levels of education, Black workers tend to make
less than their White counterparts. For example, African Americans and Hispanics are
disproportionately concentrated in jobs that pay the minimum wage or below.
In addition to increased difficulty in paying home energy costs, sustained high

energy prices could have an impact on the employment rate of low-wage workers. High
energy prices cause businesses to cut costs by laying off workers. Experience has
shown that those workers on the margin are usually the first to go, and implementation
of the EPA Finding will likely result in a significant increase in unemployment among
low-wage workers - who are disproportionateHy Black and Hispanic.
Figure VII-6 shows that, nationwide, implementation of the EPA Finding would
result in the loss of an increasingly large number of Black and Hispanic jobs:
• In 2015, 180,000 Black jobs would be lost and nearly 250,000

Hispanic jobs would be lost.
78
• In 2025, more than 300,000 Black jobs would be lost and nearly
• In 2030, nearly 390,000 Black jobs would be lost and nearly
Figure VII-6
Black and Hispanic Job Losses
r --'Caused by the EPA Endangerment Finding
o
-50
_ -100
I/)
-g -150 +--
:Jl -200
::J
O. -250 +------
..c:
~ -300 - j - - - - - - - - - - - -
I/)
-g -350 - - - - - - - - - - - - - - - - - - - -
.., -400 ----------------
-450 +---------------------
-500 " - - - - - - - - - - - - - - - - - - -
l1li Black fell Hispanic

The job losses increase every year and the cumulative losses for African
Americans and Hispanics will increase rapidly over the next two decades if the EPA
regulation is enacted. As shown in Figure VII-7:

nearly 1.7 million.
about 4.9 million.
As shown in Figure VII-8:
• By 2020, cumulative job losses for Hispanics will total 2.4 million.
• By 2030, cumulative job losses for Hispanics will total more than
6.5 million.
79
Figure VII-7
Cumulative Black Job Losses
_ _ _C=.a=lJsed by the EPA Endangerment Finding
4,700 + - - - - - - - - - - - - - - ----/-..I'~'-
~ 4,200 - ./
!~~
III 3,200 ../'
/
g 2,700 ----------~----- ----7-- . -.- -..--
E. 2,200· ./
~ 1,700 /
.., 1,200 ./
700 ~
200 +-'I""",.--,c---,---c--r--r--,---.-,-"--.---,,--r,--r---r---.--,--"-,,
2012 2015 2018 2021 2024 2027 2030
Figure VII-8
Cumulative Hispanic Job Losses
___Ca.us~!! by the ~A _Endangerment Find!ng _ _---,
6,200 --------------:;~
---_._---_._------------;~---
~ 5,200
III
'tl
C
III 4,200 +---------------;/'------
III
::s
o 3,200 +------.-.-----".' - - - - - - - - - -
E.
1lo 2,200 +-----------,~'----------
..,
1,200 +----~
200 i I , i I I i I
2012 2015 2018 2021 2024 2027 2030

80
VII.B.4. Impacts on Basic Expenditures and Discretionary Income
As discussed, African Americans and Hispanics have, on average, significantly

lower incomes than Whites, and have to spend proportionately larger shares of their
incomes on basic necessities such as food, housing, clothing, and utilities.
Implementing the EPA Finding will significantly increase the costs of all fossil fuels and,
since energy is a basic component in the production of all commodities, the prices of all
goods will increase as the energy price increases work their way through the economy.
Thus, the EPA Finding will likely have a doubly negative impact on the living standards
of African Americans and Hispanics:

regulation.
incomes.
Americans and Hispanics will face involve reallocating spending between food, clothing,
housing, and heat. For example, proportionately:

ten percent more on housing, 40 percent more on clothing, and 50
Implementing the EPA Finding will likely exacerbate this situation by forcing
African Americans and Hispanics to spend an even more disproportionate share of their
incomes -- which will have been reduced due to the effects of the C02 restrictions -- on
basic necessities.

implementation of the EPA Finding will be to further reduce Black and Hispanic
discretionary incomes. Discretionary income is the money that remains for spending or
saving after people pay their taxes and purchase necessities. It is an important concept
both because of the financial flexibility it gives individuals and because many
businesses depend on discretionary spending for sales and profits. Implementing the
EPA Finding will reduce the average discretionary incomes of both African Americans
and Hispanics.
81
VII.B.5. Impacts of Higher Energy Burdens: Increased Energy
Poverty
Hispanics suffering from "energy poverty."
The EPA Finding will greatly increase energy prices and set off repercussions
throughout the economy, but nowhere do high prices bring consequences as swiftly and
harshly as in low-income and minority households. For the tens of millions of low-
income households throughout the country, the higher energy prices will intensify the
difficulty of meeting the costs of basic human needs, while increasing energy burdens
that are already excessive. At the same time, the EPA regulation will threaten low-
income access to vital energy and utility services, thereby endangering health and
safety while creating additional barriers to meaningful low-income participation in the
economy. While home energy costs average about four percent per year in middle
class households, they can reach a staggering 70 percent of monthly income for low-
income families and seniors.
Low-income households, in order to make ends meet, are forced to spend less
on home energy than their higher-income counterparts. ~6 For the low-income elderly
who are particularly susceptible to weather-related illness such as potentially-fatal
hypothermia, a high energy burden can represent a life-threatening challenge. Given
their susceptibility to temperature-related illnesses, elderly households tend to require
more energy to keep their homes at a reasonable comfort level. However, despite this
requirement, low-income elderly households spend 16 percent less on residential
energy than all households. Implementation of the EPA Finding would place many
elderly households at serious risk by forcing them to heat and cool their homes at levels
that are inadequate for maintenance of health.
The price increases resulting from carbon restrictions would be highly regressive
-- they would place a relatively greater burden on lower-income households than on
higher-income ones. For example, one study estimated that the price increases
resulting from a 15 percent reduction in carbon emissions would cost the average
household in the lowest one-fifth of the income distribution about $560 a year, or 3.3
percent of its average income. Households in the top one-fifth of the income distribution
would pay an additional $1,800 a year, or 1.7 percent of their average income. 67
"u.S. Congressional Budget Office, "Shifting the Cost Burden of a Carbon Cap-and-Trade Program," July
2003.
"Ibid.
82
It has been widely documented that, in addition to health risks, excessive energy
burdens cause a variety of difficulties for low-income households. 68 Low-income
households with high energy burdens are more likely than higher-income households to
incur utility service disruptions because of an inability pay their bills. In turn, service
disruptions represent major crises for affected customers, often threatening the
customer's home. Studies have demonstrated a clear link between homelessness and
utility terminations. 69
The consequences of loss of heat in the winter include health and safety risks
associated with alternative heat and lighting sources such as kerosene and candles,
hunger and malnutrition, hypothermia, eviction, and increased homelessness and failure
of children to thrive. In the summers, the dangers from loss of cooling are particularly
acute for the elderly.
Low-income households have made efforts to reduce their energy consumption,

but these gains have been partially offset by an increase in cooling energy
consumption, a result of the increased use of air conditioning. Despite these
conservation efforts, rising costs of energy have caused energy bills to increase,
particularly heating bills. From 1981 through 2005, overall energy expenditures for
space heating and cooling for low-income households increased 37 percent and heating
costs, the predominant portion of the total energy bill, increased 22 percent. 70
The high percentage of income paid by low-income households on home energy

costs is more than just a statistical fact. That higher percentage translates into serious
family and social problems. For example, several studies have demonstrated a strong
connection between a family's inability to pay its home energy bills and some obvious-
and not so obvious-consequences, including homelessness, malnutrition, heart disease,
heat stroke, and the disintegration of families - including children removed from their
homes because of loss of heat or electricity. Senior homeowners are forced to sell their
homes because they cannot afford their energy bills. Further, children's educations are
disrupted because their parents cannot pay the energy bills and are more likely to move
frequently, changing schools and interrupting their children's educational development.
Finally, "Inability to pay utilities is second only to inability to pay rent as a reason for
homelessness.,,71

"See the discussion in American Gas Association, "The Increasing Burden of Energy Costs on Low-
Income Consumers," September 2007; the National Consumer Law Center, "High Fuel Costs and Low-
Income Famiiies," October 2000; Meg Power, The Cold Facts, Citizen's Energy Corporation, 2003; and
Meg Power, "Low-Income Consumers' Energy Biiisand Energy Savings In 2003 and FY 2004," Economic
Opportunity Studies, 2007.
"For example, a study conducted in the City of Philadelphia found a discernable reiationship between
utility termination and homelessness, and a study of homelessness in Northern Kentucky indicated that
utility shutoffs were among the primary causes of homelessness in that region. Ibid.
7O i bid.
"Ibid.
83
force large numbers of both groups into energy poverty. As shown in Figure VII-9, .
implementing the EPA Finding would:
• In 2020, increase the energy burden of African Americans by 14

percent and Hispanicsby 16 percent
Figure VII-9
Increases in Black and Hispanic Energy Burdens
40%
35% ..
30% +----.
25% - j - - - '
20% i - - - - - - ·
15% i - -__- - -
10% +---
5%
0%
Black Hispanic
III 2020 1112030

--_.---
VII.B.6. Impacts on Minority Small Businesses
Electricity costs and reliability are critical to low-income households and small
businesses. Given the socioeconomic profile of many minority-based communities, the
consequences of cost increases and extended electricity outages are severe,72 and
include:
• Loss revenue for small businesses, which may result in price

increases for local consumers
• Lost wages due to an inability to get to work
• Job losses if small businesses are significantly affected
• Disruptions in mass transit
"Frank M. Stewart, "An Uneven Burden: Higher Prices/Less Reliability," American Association of African
Arl]ericans in Energy, 2008.
84
• Health and mortality concerns
• Impacts on families if schools are closed
Small businesses will face the same higher costs for energy and other products
as homeowners as a result of the EPA Finding, and the impact on Black and Hispanic
small businesses will be especially severe. According to a 2008 National Federation of
Independent Business survey, energy costs are the second biggest problem facing
small business/ 3 and the Endangerment Finding would exacerbate those concerns.
Further, by damaging the overall economy, the Finding would make it more difficult for
small businesses to operate. As discussed, we estimate that under this regulation GDP
could decline by an average of $400 billion or more annually below where it would
otherwise be from 2012 to 2035; cumulative GDP losses could total more than $10
trillion by 2035. This means that, if the EPA Endangerment Finding is implemented, in
the coming decades small business owners will be operating in a weakened economy,
making it even harder for them to attract customers, expand their business, and create
jobs.
Black- and Hispanic-owned businesses represent a disproportionately small

share of total businesses, tend to be smaller and less well capitalized than White-owned
businesses, and are much more vulnerable to the economic dislocations likely to result
from the EPA CO 2 restrictions. For example:
• Black businesses represent less than five percent of the total

businesses in the U.S., and account for less than two percent of
business receipts.
• Hispanic businesses represent less than seven percent of the total
businesses in the U.S., and account for less than four percent of
total business receipts. .
• Receipts of the average Black business are only about one-fourth
as large as the average business, and receipts of Hispanic
businesses are less than half as large.
• The typical Black business has less than half as many employees
as the average business, and the typical Hispanic business has
only about one third as many employees.
• Although there are about 1.2 million Black-owned businesses in the
U.S., only about 11,000 of them have annual revenues in excess of
$1 million.
• Although there are 1.6 million Hispanic-owned businesses in the
U.S., only about 29,000 of them have annual revenues in excess of
$1 million.
Thus, the potential impact of the EPA regulation on Black and Hispanic
businesses is significant.
"Bruce Phillips and Holly Wade, "Small Business Problems and Priorities," National Federation of
Independent Business Research Foundation, June 2008.
85
VII.B.7. Impacts on the Federal Debt Burden
As the economy adjusts to a reduced GOP and rising energy prices caused· by
the EPA Finding, economic activity declines, personal incomes decline, and
employment decreases as millions of jobs are lost. The negative economic impacts
would be without the regulation (Figure VII-1 0).74 This re~resents an additional $33,000
per person, or more than $130,000 for a family of four. 5 Since Black and Hispanic
incomes are well below the U.S. average, the increased burden of this incremental debt
would be 25 percent higher for Hispanic families and about 33 percent higher for
Hispanic families. .
Figure VII-10
Increased Federal Debt Burden For a Family of Four
$140
t!! $120
..!!!
"0 $100
0
0>
0
0 $80
N
Ul
"C $60
t:
Cll
Ul $40
::J
0
..t: $20
I-
$0
2015 2020 2025 2030 2035
~-_.- -_._-------'
Source: Heritage Foundation and Management Information Services, Inc., 2010.
74These estimates are based on the Heritage Foundation studies, op. cit.
75 these burdens come after adjusting for inflationand are in addition to the $450,000 per family of federal
debt that will accrue over this period even without cap and trade.
86
VII.C. Impacts on African Americans and Hispanics by State
VII.C.1. Disparate Impacts on States
The previous discussion indicates that the impact of implementing the EPA
Finding on the U.S. economy, and on low-income groups, African Americans, and
Hispanics, will be severe. The regulation will cause higher energy costs to spread
throughout the economy as producers try to cover their higher production costs by
raising their product prices, and these impacts will be felt to varying degrees in different
states. For example, because virtually all businesses rely on electricity to produce and
sell goods and services, the economic impacts .of coal-based energy extend far beyond
the generation and sale of electricity. The availability of low-cost electricity produces
powerful ripple effects that benefit state economies as a whole, but implementation of
the EPA regulation would greatly increase electricity prices - and much more in some
states than in others.
For example, consumers in the Midwest and Southeast will. literally face double
the impacts of carbon caps than Consumers elsewhere in the country. Oak Ridge
National Laboratory found that the carbon intensity of heating fuel and electricity
generation will lead to very different cost increases in residential fuels. The Oak Ridge
findings reveal dramatic variation in impacts across the regions by 2030, with vulnerable
consumers in the South and Midwest incurring price increases more than double those
of lower-income consumers in the Northeast and West,7e
Since the proposed CO2 restrictions would require continuing and increasingly
substantial and increasingly severe economic and jobs impacts:
affected over the next two decades, and by 2030 states' per capita
"National Community Action Foundation, National Consumer Law Center, Public Citizen, and Friends of
the Earth, "Statement on Consumer Impacts of a Cap-and-Trade Climate Change Policy," March 12,
2009.
87
VII.C.2. Black and Hispanic Incomes
As part of this research we estimated the impacts of the EPA finding on African
Americans and Hispanics in the seven states where they are the most heavily
concentrated: Arizona, California, Florida, Georgia, Illinois, New York, and Texas.
Figure VII-11 shows the average annual impacts in these states, 2012-2035, of the EPA
endangerment finding on Black and Hispanic personal incomes. This figure illustrates
that, in all states (except Georgia), the impacts on Hispanic incomes exceed the
impacts on Black incomes, since there are more Hispanics than African Americans
residing in these states. Further, the growth rates of the Hispanic population exceed
those of African Americans in all of these states.
This figure also shows that the impacts vary widely among the states. The
greatest loss of income will be experienced by Hispanics in California, since this state
has, by far, the largest number of Hispanic residents and the most rapidly growing
Hispanic population.
Figure VII-11
Endangerment Finding on Black and Hispanic Personal Incomes
----------------------,
-$6,000
-$7,000
II! Black uHispanic

88
VII.C.3. Black and Hispanic Jobs
Figure VII-12 shows the average annual impacts in the seven states, 2012-2035,
of the EPA endangerment finding on Black and Hispanic jobs. The jobs concept here is
annual, full time equivalent jobs.?? This figure illustrates that, in all states (except for
Georgia), Hispanic job losses exceed Black job losses, since there .are more Hispanics
than African Americans residing in these states. Further, the growth rates of the
Hispanic population exceed those of African Americans in all of these states.
This figure also shows that the impacts vary widely among the states. The
greatest job losses will be experienced by Hispanics in California, since this state has,
by far, the largest number of Hispanic residents. Nevertheless, the job losses are
substantial in every state. For example, every year 2012 - 2035, average Hispanic job
losses will total:
• Nearly 70,000 in California

• Nearly 40,000 in Texas
• Nearly 20,000 in Florida
Every year 2012 - 2035, average Black job losses will total:
• More than 13,000 in Texas

• More than 13,000 in Florida
• Nearly 13,000 in Georgia
While Hispanic jobs losses exceed Black job losses in all of the states except
Georgia, in some states job losses for the two groups are about the same - for
example, in New York and in Illinois.
77An FTE job is defined as 2,080 hours worked in a year's time, and adjusts for part time and seasonal
employment and for labor turnover. Thus, two workers each working six months of the year would be
counted as one FTE job.
89
Figure VII-12
Endangerment Finding on Black and Hispanic Jobs
-10,000 •
~
-20,000 +---"'~-
11I
-g -30,000
"'"')
-40,000
-50,000 +---
;J
-60,000 - ' - - - - - - . - - - - - - - - - - - - - - - -
I!I Black cl Hispanic

---------.--,--~__,__-,_____,___,__c__--------.J
VII.C.4. Black and Hispanic Energy Burdens
Figures VII-13 and VII-14 show the increases in Hispanic and Black energy
burdens in the states in 2020 and 2030 resulting from the EPA Endangerment Finding.
These figures illustrate that:

increase in each year.
• For each group, the increases in energy burdens in 2030 are much
energy burden is larger for African Americans than for Hispanics
Americans
90
Figure VII-13
Increase in Hispanic Energy Burdens in Selected States
120%
100%
80% - [ - - - - - - - - -
60% +-------.-
40%
20%
0%
III 2020 III 2030

Figure VII·14
Increase in Black Energy Burdens in Selected States
160% . . , . - - - - - - - - - - - - - - - - - - - - - -
140% +---------------------
120% +---------------------
100% +--------
80% +---------,
60% +-------
40%
20%
0%
1Il2020 1112030
91
VIII. FINDINGS AND IMPLICATIONS
Our major finding is that the CO 2 restrictions implied in the EPA Endangerment
Finding would have serious economic, employment, and energy market impacts at the
national level and for all states, and that the impacts on low-income groups, the elderly,
African Americans, and Hispanics would be especially severe. On the basis of studies .
of the economic impact of carbon restrictions, we estimated that implementation of the
EPA Finding would: .
• Significantly reduce U.S. GDP every year over the next two
decades, and by 2030 GOP would be about $500 billion less than
in the reference case - which assumed no EPA carbon restrictions
• Significantly reduce U.S. employment over the next two decades,
and by 2030 would result in the loss of 2.5 million jobs
• Significantly reduce U.S. household incomes over the next two
decades, and by 2030 average household income would be
reduced by about $1,200 annually
In addition, the EPA carbon restrictions would significantly greatly U.S. energy
costs, and by 2030 these increases (above the reference case) could total:
• . 50 percent for gasoline prices

• 50 percentfor residential electricity prices
• 75 percent for industrial electricity prices
• 75 percent for residential natural gas prices
• 100 percent for industrial natural gas prices
• 40 percent for jet fuel prices
• 40 percent for diesel prices
• 600 percent for electric utility coal prices
The EPA regulation will impact low income groups, the elderly, and minorities
disproportionately, both because they have lower incomes to begin with, but also
because they have to spend proportionately more of their incomes on energy, and rising
energy costs inflict great harm on minority families. Lower-income families are forced to
allocate larger shares of the family budget for energy expenditures, and minority
families are significantly more likely to be found among the lower-income brackets.
This disparity between racial groups means that rising energy costs have a
92
Impact on Poverty
threefold if the EPA Endangerment Finding is implemented: Their incomes will be
another job. These impacts on earnings and employment will increase the rates of
poverty among African Americans and Hispanics, and we estimate that one of the
impacts of implementing the EPA Finding will be to, by 2025:

22 percent
20 percent
Finding. An unintended result of the EPA regulation will likely be to force millions of
African Americans and Hispanics below the poverty line -- many of whom have only
recently managed to work their way out of poverty.

energy-intensive building materials, will tend to increase the costs of housing. This will

Impact on Incomes
from the EPA Endangerment Finding, and implementation of the Finding will reduce.
Black and Hispanic household incomes by increasing amounts each year:

compared to the reference case (which assumes' that the EPA
income will decrease $630 compared to the reference case.
93
o In 2025, Black median household income will be nearly $600 less
income will be about $660 less than under the reference case.
o In 2035, Black median household income will be $700 less than
will be $820 less.
o The cumulative loss in Black median household income over the
o The cumulative loss in Hispanic median household income over the
Impact on Jobs
If implemented, the EPA Endangerment Finding would divert resources currently

used to produce goods and services into the task of obtaining energy from sources that
are less energy efficient and more costly than fossil fuels. Business activity is likely to
contract relative to the levels that would have prevailed without the EPA policy-induced
energy cost increases, demand for labor will weaken, and jobs will be lost.
The most salient characteristic of the employment status of the demographic

groups is the fact that the unemployment rates for African Americans and Hispanics
have consistently been much higher than average and than those for Whites.
African Americans and Hispanics are also at a disadvantage in the labor force
when they are employed, for they tend to be disproportionably concentrated in lower
paid jobs. Nationwide, implementation of the EPA Finding would result in the loss of an
increasingly large number of Black and Hispanic jobs:
o In 2015, 180,000 Black jobs would be lost and nearly 250,000

Hispanic jobs would be lost. .
o In 2025, more than 300,000 Black jobs would be lost and nearly
o In 2030, nearly 390,000 Black jobs would be lost and nearly
The job losses increase every year, and the cumulative losses for African
Americans and Hispanics will increase rapidly over the next two decades if the EPA
regulation is enacted:
o By 2020, cumulative job losses for African Americans will total

nearly 1.7 million.
o By 2030, cumulative job losses for African Americans will total
about 4.9 million.
o By 2020, cumulative job losses for Hispanics will total 2.4 million.
o By 2030, cumulative job losses for Hispanics will total more than
6.5 million.
94
Impact on Basic Expenditures and Discretionary Income
African Americans and Hispanics have, on average, significantly lower incomes

than Whites, and have to spend proportionately larger shares of their incomes on basic
necessities such as food, housing, clothing, and utilities. Implementing the EPA Finding
will significantly increase the costs of all fossil fuels and, since energy is a basic
component in the production of all commodities, the prices of all goods will. increase as
the energy price increases work their way through the economy. Thus, the EPA Finding
will likely have a doubly negative impact on the living standards of African Americans
and Hispanics:

regulation.
incomes.
Americans and
Hispanics will face involve reallocating spending between food, clothing, housing, and
heat. For example, proportionately:

ten percent more on housing, 40 percent more on clothing, and 50
Implementing the EPA Finding will exacerbate this situation by forcing African
Americans and Hispanics to spend an even more disproportionate share of their
incomes -- which will have been reduced due to the effects of the CO 2 restrictions -- on
basic necessities.

the EPA Finding will be to further reduce Black and Hispanic discretionary incomes.
Discretionary income is the money that remains for spending or saving after people pay
their taxes and purchase necessities. It is an important concept both because of the
financial flexibility it gives individuals and because many businesses depend on
discretionary spending for sales and profits. Implementing the EPA Finding will reduce
the average discretionary incomes of both African Americans and Hispanics.
95
Increased Energy Poverty
Hispanics suffering from "energy poverty." The Finding will greatly increase energy
prices and set off repercussions throughout the economy, but nowhere do high prices
bring consequences as swiftly and harshly as in low-income and minority households.
For the tens of millions of low-income households, the higher energy prices will intensify
the difficulty of meeting the costs of basic human needs, while increasing energy
burdens that are already excessive. At the same time, the EPA regulation will threaten
low-income access to vital energy and utility services, thereby endangering health and
safety while creating additional barriers to meaningful low-income participation in the
economy. While home energy costs average about four percent per year in middle
class households, they can reach a staggering 70 percent of monthly income for low-
income families and seniors.
For the low-income elderly who are particularly susceptible to weather-related

illness such as hypothermia, a high energy burden can represent a life-threatening
challenge. Given their susceptibility· to temperature-related illnesses, elderly
households tend to rlilquire more energy to keep their homes at a reasonable comfort
level. However, despite this requirement, low-income elderly households spend 16
percent less on residential energy than all households. Implementation of the EPA
Finding would place many elderly households at serious risk by forcing them to heat
and cool their homes at levels that are inadequate for maintenance of health. The price
increases resulting from carbon restrictions would be highly regressive -- they would
place a relatively greater burden on lower-income households than on higher-income
ones.
It has been widely documented that, in addition to health risks, excessive energy
burdens cause a variety of difficulties for low-income households. Further, "Inability to
pay utilities is second only to inability to pay rent as a reason for homelessness."

force large numbers of both groups into energy poverty. Implementing the EPA Finding
would:
• In 2020, increase the energy burden of African Americans by 14 .

percent and Hispanics by 16 percent
Impact on Minority Small Businesses
Electricity costs and reliability are critical to low-income households and small
businesses. Given the socioeconomic profile of many minority-based communities, the
96
consequences of cost increases and extended electricity outages are severe. Small
businesses will face higher costs for energy and other products as a result of the EPA
Finding, and the impact on Black and Hispanic small businesses will be especially
severe. Black- and Hispanic-owned businesses represent a disproportionately small
share of total businesses, tend to be smaller and less well capitalized than White-owned
businesses, and are much more vulnerable to the economic dislocations likely to result
from the EPA C02 restrictions. Thus, the potential impact of the EPA regulation on
Black and Hispanic Businesses is significant.
Impacts on the Federal Debt Burden
As the economy adjusts to a reduced GDP and rising energy prices caused by
the EPA Finding, economic activity declines, personal incomes decline, and
employment decreases as millions of jobs are lost. The negative economic impacts
would be without the regulation. This represents an additional $33,000 per person, or
more than $130,000 for a family of four. Since Black and Hispanic incomes are well
below the U.S. average, the increased burden of this incremental debt would be 25
percent higher for Hispanic families and about 33 percent higher for Hispanic families.
Impacts on African Americans and Hispanics by State
The impact of implementing the EPA Finding on the U.S. economy, and on low-
income groups, African Americans, and Hispanics, will be severe. The regulation will
cause higher energy costs to spread throughout the economy as producers try to cover
their higher production costs by raising their product prices, and these impacts will be
felt to varying degrees in different states. For example, because virtually all businesses
rely on electricity to produce and sell goods and services, the economic impacts of coal-
based energy extend far beyond the generation and sale of electricity. The availability
of low-cost electricity produces powerful ripple effects that benefit state economies as a
whole, but implementation of the EPA regulation would greatly increase electricity prices
- and much more in some states than in others. For example, consumers in the
Midwest and Southeast will literally face double the impacts of carbon caps than
consumers elsewhere in the country.
Since the proposed CO 2 restrictions would require continuing and increasingly

substantial and increasingly severe economic and jobs impacts: .
97
affected over the next two decades, and by 2030 state per capita
We estimated the impacts of the EPA Finding on African Americans and

Hispanics in the seven states where they are the most heavily concentrated: Arizona,
California, Florida, Georgia, Illinois, New York, and Texas. In all states (except
Georgia), the impacts on Hispanic incomes exceed the impacts on Black incomes, since
there are more Hispanics than African Americans residing in these states. Further, the
growth rates of the Hispanic population exceed those of African Americans in all of
these states.
The impacts vary widely among the states. The greatest loss of income will be
experienced by Hispanics in California, since this state has, by far, the largest number
of Hispanic residents and the most rapidly growing Hispanic population. In all states
(except for Georgia), Hispanic job losses exceed Black job losses. The impacts vary
widely among the states. While Hispanic jobs losses exceed Black job losses in all of
the states except Georgia, in some states job losses for the two groups are about the
same - for example, in New York and in Illinois.
We estimated the increases in Hispanic and Black energy burdens in the states
in 2020 and 2030 resulting from the EPA Endangerment Finding and found that:

increase in each year. .
• For each group, the increases in energy burdens in 2030 are much
energy burden is larger for African Americans than for Hispanics.
Americans.
98
Conservative Estimates
The results derived here should be viewed as conservative and as indicating the
minimal negative effects that may be expected. The reason is that the CO 2 restriction.
programs anq legislation that have been analyzed contain numerous subsidy, rebate,
compensation, and incentive provisions to lessen the burden of the CO 2 restrictions - at
least in the short run. The EPA Finding contains no. such provisions, and EPA is not
permitted to consider economic impacts in developing regulations. Thus, the impacts of
the EPA Finding on the economy and labor market are likely to be even more severe
than those estimated here.
99
MANAGEMENT INFORMATION SERVICES, INC.
Management Information Services, Inc. is an economic research and
management consulting firm with expertise on a wide range of complex issues,
including energy, electricity, and the environment. The MISI staff offers expertise in
. economics, information technology, engineering, and finance, and includes former
senior officials from private industry, federal and state government, and academia.
Over the past three decades MISI has conducted extensive proprietary research, and
since 1985 has assisted hundreds of clients, including Fortune 500 companies,
nonprofit organizations and foundations, academic and research institutions, and state
and federal government agencies including the White House, the National Academy of
Sciences, the U.S. Department of Energy, the U.S. Environmental Protection Agency,
the Energy Information Administration, the Department of Defense, NASA, and the U.S.
General Services Administration.
For more information, please visit the MISI web site at http://www.misi-net.com.
100

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CHAMBER OF COMMERCE

December 29, 2010

The Honorable Darrell E. Issa

Re: Regulations and their impact on the economy and jobs

The U.S. Chamber of Commerce, the world's largest business federation

I am the Chamber's Senior Vice President for Environment, Technology and

I will confme my response to (1) environmental regulations that the Chamber is

I. Environmental Regulations and Their Impact

Compliance with environmental regulation has, at least in recent years, become

1. "Legislation by regulation," whereby EPA leapfrogs ahead of the

2. "Reversal or reconsideration," whereby EPA seeks to reverse, reconsider

3. "Sue and setde," whereby EPA initiates a rulemalcing to setde a lawsuit

4. "Strict compliance," whereby EPA is obligated to issue a regulation iJ:?y

Regulations Proposed or Finalized Between 1/1/2009 and the Present

Regulation What Happened? Impact

ppb, EPA is performing a "do-over" of those $1.013 trillion annually between

EPA proposed the Transport Rille to reduce

Grease and Terminator 2 car chase fame-a

Regulation What Happened? Impact

EPA is considering technology-based

in 2012. NAAQS, and an overly strict

II. How to Fix the Problem

There are a number of good ideas circulating in Congress as to how best to

• Enforce provisions of existing environmental laws requiring EPA to

air emissions no weight whatsoever when determining what "background"

RANDEL K. JOHNSON 161SH STREET, N.W.

January 13, 2010

The Honorable Darrell E. Issa

In an effort to address this questionable process, the US Chamber of CDmmerce worked

We look forward to continuing to promote transparency and to insure appropriate public

The Honorable Darrelllssa

Dear Chairnlan Issa,

1. Rulemaking Timeframe Restricts Thoughtful, Robust Industry Comment & Dialogue

3. The intent standard applied to "disruptive trade practices" should be extreme

b. Proposed Rulemaking on Prohibition of Market Manipulation

b. Swap Dealer Definition Fails To Account For Safeguards Already In Place

options or swaps contracts in exempt or agricultural commodities. CMC believes this is a

If the Commission makes the necessary findings supported by demonstrable evidentiary

b. Sophisticated Market 'participants Are Required To Provide Detailed Disclosures,

c. FCM Investment Restrictions May Lead To Increased Customer Costs

Dear Mr. Stawick,

In response to the Commodity Futures Trading Commission's (CFTC or Commission) presentation

American Farm Bureau Federation

December 17, 2010

Dear Mr, Stawick:

November 24, 2010

Mr. David A. Stawick

Dear Mr. Stawick,

October 28, 2010

Mr. David A. Stawick

Dear Mr. Stawick,

Harmonious Treatment of Agricultural Swaps Is in the Public Interest

Below are CMC's answers to the Commission's specific questions.

Current Agricultural Swaps Business

Agricultural Swaps Clearing

See our answers above.

Agricultural Swaps Purchasers

As we explained above, we do not believe agricultural swapslATO purchasers need more

11. Ifso, why, and what should those protections be?

See our answer to question 10.

Designated Contract Markets

15. Ifyes, why?

16. Ifno, what other requirements, conditions or limitations should apply?

Natural Resources t~:g~:;::::~;~=