Power-plant rules do more than regulate pollution. They can also regulate competitors out of the market. That is the overlooked significance of the Environmental Protection Agency’s (EPA) recent repeal of most Biden administration greenhouse-gas standards for power plants. The move is an environmental-policy reversal and also a competition-policy reform.
The final rule is only a partial repeal. It eliminates standards for existing fossil-fuel-fired steam units, along with several carbon-capture requirements for coal plants and new baseload combustion turbines. A separate supplemental proposal contemplates a broader rollback. Published Sept. 17 in the Federal Register, the final rule takes effect Nov. 16.
The central economic point is that a regulation that forwards a legitimate public-policy goal may nonetheless also skew competition. This happens when the rule imposes costs on some technologies that their rivals do not bear, steers investment toward politically favored alternatives, or raises barriers for firms too small to absorb the compliance burden.
The power-plant rule did all three. Its repeal could therefore improve economic welfare by putting generating technologies on more equal footing, reducing wasted resources, and giving cost and reliability greater weight in deciding how to power the grid.
The EPA’s Power Problem
The strongest legal defense of the repeal begins with the limits that Congress placed on the EPA’s authority. The Clean Air Act (CAA) does not clearly authorize the agency to restructure the national electricity system through standards that rely on inadequately demonstrated technologies, impose extraordinary costs, or effectively require power generation to shift among energy sources. Recent Supreme Court decisions lend substantial support to that argument.
Section 111 of the CAA, codified at 42 U.S.C. § 7411, directs the EPA to identify the “best system of emission reduction,” taking into account cost, environmental effects beyond air quality, and energy requirements. . In its final rule, the EPA concluded that capturing and storing 90% of a plant’s carbon emissions—a process known as carbon capture and storage (CCS)—was inadequately demonstrated, unreasonably expensive, and unachievable within the compliance period. The necessary capture, pipeline, and underground-storage infrastructure simply does not exist at the required scale.
The EPA reached a similar conclusion about natural-gas co-firing, which involves burning natural gas alongside another fuel. The agency found that the practice would use natural gas inefficiently and, in this context, amount to impermissible generation shifting. These are statutory judgments about technology, cost, and energy requirements, rather than a political endorsement of fossil fuels.
The Supreme Court’s decision in West Virginia v. EPA provides the most important backdrop. The Court held that Section 111(d) did not authorize the EPA to set carbon dioxide limits that would force a nationwide transition away from coal. Under the “major questions doctrine,” agencies need clear congressional authorization to exercise powers of vast economic and political significance.
The 2024 standards were less explicit than the Clean Power Plan. Even so, their reliance on CCS and co-firing remains vulnerable to the charge that EPA used technical standards to bring about a transition Congress never clearly authorized the agency to order directly.
The repeal also benefits from the demise of Chevron deference, under which courts generally deferred to reasonable agency interpretations of ambiguous statutes. In Loper Bright Enterprises v. Raimondo, the Supreme Court held that courts must exercise their own judgment when interpreting statutes. Section 111’s limits therefore carry greater weight, especially when an agency’s interpretation could transform the electricity market.
The final rule’s opponents will rely on Massachusetts v. EPA, the 2007 decision holding that greenhouse gases can qualify as air pollutants under the CAA. They will also argue that the EPA failed to explain its change in position or adequately address serious reliance interests—the investments and other commitments parties made based on the former rule.
Those arguments make litigation inevitable, and the repeal is hardly bulletproof. Yet Massachusetts v. EPA does not require the U.S. Court of Appeals for the D.C. Circuit to preserve any particular emissions standard. The EPA has offered a technology-specific explanation, relied on the statute’s cost and achievability factors, and retained other conventional pollution controls. That record gives the court a plausible basis to uphold the repeal while leaving the broader fight over the EPA’s endangerment finding—its determination that greenhouse gases threaten public health and welfare—for another day. The related litigation is being tracked in Commonwealth of Massachusetts v. EPA
The Distortion Is Coming From Inside the Border
The economic case for the final rule is made clearer by the concept of anticompetitive market distortions (ACMDs). Developed prominently by Shanker Singham and applied in work we’ve done together, the framework examines how governments can reduce economic welfare through “behind-the-border” policies—domestic rules that distort competition without taking the familiar form of tariffs or import quotas.
These policies can protect incumbents, raise rivals’ costs, block new entrants, weaken property rights, or discriminate against foreign competitors. Their official label—whether they are environmental, industrial, or trade policy—tells us little. What matters is whether a policy preserves equal competitive opportunity or lets the government decide who may compete and on what terms. I summarized the framework in this Truth on the Market analysis of behind-the-border barriers and Singham and I expounded further in the Mercatus Center’s public-interest comment on anticompetitive regulations.
The framework rests on three related pillars. First, strong property rights give firms confidence that the government will not arbitrarily confiscate or disable their investments, technologies, contracts, or productive assets. Second, domestic competition works best when firms compete through price, quality, innovation, and reliability rather than political privilege. Third, international competition requires that foreign firms have a reasonable opportunity to enter and compete.
A single rule can weaken several pillars at once. A technology mandate may suppress domestic rivalry, steer capital away from more productive uses, and leave American producers at a disadvantage against firms operating under very different regulatory regimes.
The ACMD framework still leaves ample room for sound regulation. A carefully designed, competitively neutral rule may increase welfare by correcting a genuine market failure. The framework also recognizes that carbon emissions can impose “external costs”—harms borne by people other than those producing or consuming the electricity.
The real question is more exacting: Does this particular rule improve how society allocates its resources? Or does it use administrative power to favor selected technologies while saddling consumers and competing producers with avoidable costs?
How to Tilt a Power Market in Three Easy Steps
The repealed power-plant requirements fit the ACMD framework in three ways.
First, the rule suppressed competitors by regulatory category. Coal, natural gas, nuclear power, renewables, and emerging technologies could not compete based on cost, capacity, reliability, and environmental performance. Instead, the rule made particular technologies—especially large-scale CCS and natural-gas co-firing—conditions of continued operation or market entry. That is competition by regulatory classification, rather than competition on the merits.
The distortion becomes especially costly in an industry built around long-lived assets. A generating unit may operate for decades. When a rule makes continued operation contingent on an expensive technology before that technology is commercially ready, it immediately reduces the asset’s expected value. Investors must then choose among premature retirement, a costly retrofit, and abandonment of the project. The result may include lower emissions, but it also means a less flexible electricity supply and less experimentation with competing mixes of generation technologies.
Mandates can similarly narrow the path of innovation by freezing the regulator’s preferred technology in time. Energy markets, like other markets, advance through trial, error, and discovery. Natural-gas turbines may grow more efficient. New nuclear designs may become cheaper. Energy storage may improve. Carbon capture may prove viable for a particular industrial use. A technology that barely registers today may solve tomorrow’s reliability problems at a lower cost.
Making one pathway a condition of market participation reduces the payoff from discovering alternatives. Repeal allows firms to test different combinations of generation and emissions reduction instead of asking the EPA to pick the winning portfolio years in advance. Regulators have many talents. Crystal-ball gazing is rarely among them.
Second, the mandate created a regulatory moat around large, politically connected, and well-capitalized firms. A nationwide utility or conglomerate may have the resources to finance engineering studies, secure permits, negotiate infrastructure contracts, and spread compliance costs across a broad ratepayer base. Smaller independent power producers, municipal utilities, and new entrants may struggle to do the same. Compliance costs can therefore block entry and expansion even when a rule appears neutral on its face.
This is the familiar political economy of regulation. Firms that can afford compliance may support rules that hobble less-established rivals. Incumbents turn regulatory complexity into a competitive advantage, while policymakers present the resulting concentration as a technological necessity. Repeal closes one channel for rent-seeking—the use of government power to secure private advantage. It cannot guarantee a competitive electricity market, but it makes environmental compliance less useful as a protective moat.
Third, the mandate placed American producers at an international disadvantage. U.S. firms would have borne technology and capital costs that many foreign competitors—including state-backed companies operating under different budget constraints and regulatory systems—might avoid.
To be clear, domestic deregulation alone cannot eliminate foreign ACMDs. Chinese state-owned enterprises, foreign subsidies, and protectionist local-content rules will continue to distort energy and industrial markets. But loading another self-inflicted burden onto U.S. producers is a poor answer to those distortions.
May the Best Megawatt Win
The EPA estimates that the partial repeal will save $160 billion in compliance costs from 2026 through 2047 using a 3% discount rate, and $95 billion using a 7% rate. A discount rate converts future costs and benefits into today’s dollars. The higher the rate, the less weight the calculation gives to costs incurred far in the future.
The agency puts the avoided real-resource costs even higher: $280 billion at a 3% rate and $180 billion at a 7% rate. These are the physical inputs and labor that firms would otherwise devote to compliance.
Those figures are agency estimates, rather than guaranteed savings on consumers’ electric bills. Still, they identify the right economic mechanism. Resources once earmarked for mandated equipment and regulatory compliance become available for generation, transmission, storage, grid reliability, and other uses consumers may value more.
The competitive gains may matter even more than the immediate accounting savings. Repeal allows owners to keep existing plants available as new technologies develop. It also expands the range of technologies that can bid into wholesale electricity markets and reduces the chance that one politically favored technology becomes a single point of failure.
More supply options become especially valuable as electricity demand rises because of manufacturing, electrification, and data centers. Reliability is a basic economic input. When it grows scarce, the costs can be enormous.
Deregulation also allows markets to produce better information. If CCS makes economic sense, power producers can adopt it in response to fuel prices, local pollution rules, tax incentives, customer demand, or contractual commitments. If it cannot compete on those terms, a mandate can hide that weakness by compelling investment and sending the bill to ratepayers or taxpayers. Voluntary adoption makes both success and failure more informative, which helps markets discover which technologies actually work.
A measured local externality also differs from a global problem addressed through mandates for individual facilities. Regulators can often link conventional pollutants such as sulfur dioxide and nitrogen oxides more directly to local health effects and address them through source-specific controls. Carbon dioxide presents a harder problem. Its effects are global, each plant’s marginal contribution is diffuse, and the choice among emissions-reduction methods can reshape the entire electricity system.
Carbon policy remains possible, but broad technology mandates carry unusually high error costs—the harm caused when regulators choose the wrong solution. They also create a public-choice problem by inviting political incentives and organized interests to influence how an agency allocates capital across the economy.
Repeal does not automatically tilt the market toward coal or gas. A competitive market may continue to favor renewables, nuclear power, storage, or efficiency improvements wherever they offer better value. The point is that the outcome should reflect resource costs and consumer preferences instead of serving as a regulatory penalty imposed on one class of assets. Removing an anticompetitive rule gives consumers a greater chance to benefit from rivalry among energy sources. It does not choose the winner for them.
Even Deregulation Has a Price
To be sure, repeal carries costs and risks of its own, and a market-oriented analysis should acknowledge them. Greenhouse-gas emissions may impose external costs that never appear on a generator’s balance sheet. State regulation, federal controls on conventional pollutants, permitting rules, and tax subsidies will also continue to shape competition.
Repeated policy reversals create another cost: uncertainty. If each administration switches between mandates and repeal, investors will demand a risk premium—additional compensation for accepting political risk. Regulatory whiplash has a price.
These concerns favor durable, generally applicable rules, which doesn’t mean regulators must preserve a technology mandate simply because reversing it creates disruption. Congress can legislate clearly if it wants the EPA to regulate greenhouse gases in a particular way. States can address local pollution and reliability concerns within the boundaries of federal law. Policymakers can also use market-based tools that price genuine external harms while allowing producers to choose how to reduce them.
The proper benchmark is not zero regulation. The framework permits regulation where its benefits exceed its costs. It also favors the lawful approach that distorts competition the least.
The international dimension demands similar care. Removing a domestic ACMD while leaving foreign distortions untouched may expose U.S. exporters to carbon-border measures—fees or restrictions imposed on carbon-intensive imports—or discriminatory standards abroad. The better response is negotiation aimed at reducing behind-the-border distortions across countries. Another round of subsidies and protectionism would merely add new distortions to the old ones.
That broader view is the ACMD framework’s chief virtue. It examines the entire competitive field, including domestic regulation, foreign state aid, property rights, market access, and the incentives each creates.
Repeal may also reduce regulatory fragmentation—the patchwork created by overlapping or conflicting rules. A single federal standard can sometimes override inconsistent state requirements. Yet a federal mandate resting on shaky statutory ground invites litigation, policy reversals, and more uncertainty.
States will continue to make different choices about electricity generation and environmental protection. But firms can plan more rationally once the federal government ceases to condition national market participation on a disputed technological pathway. It’s important to remember that stable legal boundaries are themselves a competitive asset.
Pulling the Plug on Distortion
The EPA’s repeal of the power-plant greenhouse-gas requirements should withstand judicial review. The agency has offered a legally grounded and technically specific explanation. Section 111 does not clearly authorize the EPA to transform the electricity system, and the technologies the rule mandated were inadequately demonstrated, unreasonably costly, or unachievable on its timetable.
The economic case points in the same direction. The repealed rule distorted competition by raising rivals’ costs, favoring selected technologies, erecting entry barriers, and placing American producers at a regulatory disadvantage in an already distorted global market.
Repeal leaves the climate debate unresolved. The final rule cannot eliminate every externality or guarantee lower electricity prices. Its benefits are more modest and more defensible. It restores room for competition, experimentation, and consumer choice while allowing capital and labor to flow toward more valuable uses.
Removing regulatory distortions lets resources flow to their most valuable uses—advancing both competition and environmental goals in an economy hungry for abundant, reliable power.
