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October 16, 2017

Clean Power Plan Repeal: Myths vs. Reality

October 16, 2017
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With EPA administrator Scott Pruitt’s announcement that the Trump Administration was formally proposing repeal of the so-called “Clean Power Plan” (CPP), certain voices in the blogosphere and media predictably went nuts. In the formal response from IER, we have already applauded the announcement as promoting liberty in energy markets and keeping energy more affordable for American households. In the present post, let me further respond to some of the (hysterical) reactions that are based on myths.

Myth #1: “The Obama Administration never started a ‘war on coal.’ This is a bogus GOP talking point.”

Here it would be harder to find a smokier gun than then-presidential candidate Senator Barack Obama, speaking in a public forum to the San Francisco Chronicle back in January 2008. In this clip he says, “…understanding what is at stake, and climate change is a great example. You know when I was asked earlier about the issue of coal. You know, under my plan, of a cap-and-trade system, electricity rates would necessarily skyrocket…”

And then in this clip, in what has become an infamous line, Obama says of his proposed cap-and-trade system, “So if somebody wants to build a coal-powered plant, they can. It’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.”

Now to be fair, in the clip I’ve hyperlinked, you can see the full context of that notorious statement, where a few moments earlier Obama says he is open to the idea of coal-fired plants so long as all of the greenhouse gas emissions are captured. Yet given the current technology and cost considerations, to insist on emission-free coal is effectively a ban on new coal-fired plants.

Indeed, Obama’s allies knew that this was the case. Writing in 2013, here is economist Paul Krugman, explaining why direct regulation to prohibit coal is a defensible policy, given the political realities:

As I’ve just suggested, the standard economic argument for emissions pricing comes from the observation that there are many margins on which we should operate.…Nonetheless, the message I took from [a book by William Nordhaus] was that direct action to regulate emissions from electricity generation would be a surprisingly good substitute for carbon pricing—not as good, but not bad.

And this conclusion becomes especially interesting given the current legal and political situation in the United States, where nothing like a carbon-pricing scheme has a chance of getting through Congress at least until or unless Democrats regain control of both houses, whereas the Environmental Protection Agency has asserted its right and duty to regulate power plant emissions, and has already introduced rules that will probably prevent the construction of any new coal-fired plants. Taking on the existing plants is going to be much tougher and more controversial, but looks for the moment like a more feasible path than carbon pricing. [Paul Krugman 2013, bold added.]

And there you have it: Paul Krugman was admitting in 2013 that theoretically, an open-ended government “price” on carbon would be preferable, but that in practice Krugman endorsed the EPA’s top-down planning of the energy sector, including the power plant rules that would “probably prevent the contruction of any new coal-fired plants.” And, far from contenting himself with stopping the construction of new plants, Krugman went on to hope that the federal government could “tak[e] on the existing plants.”

So when the fans of open markets in the energy sector complain of a “war on coal,” they aren’t imagining things. Leading figures, including Barack Obama and Nobel laureate Paul Krugman, publicly declared their opposition to coal-fired power plants.

Myth #2: “The EPA’s power plant rules wouldn’t have hurt coal. It was natural gas prices that would hurt coal.”

If this were true, then it wouldn’t make any sense for critics to complain about President Trump’s removal of the CPP, would it? Once again, some of the loudest environmental activists try to have it both ways. On the one hand, measures like the CPP are essential to ensuring that our grandchildren survive the ravages of climate change, while on the other hand, these regulations apparently have no impact whatsoever on energy sources or prices for consumers. These environmentalists need to make up their minds.

It is certainly true that falling natural gas prices are part of the reason the US has shifted some of its electricity generation away from coal and into gas-fired plants. Even so, the CPP was projected to have a serious long-term impact on coal generation.

As I explained in this previous IER post, we can use the EIA’s 2017 long-term energy outlook to get a sense of the government’s own forecast of the CPP’s impact. The following chart from the EIA shows two scenarios, with and without the CPP in force:

 

In the chart above, the right-hand side shows coal’s generation staying roughly level from 2020 through 2040, in the case with no Clean Power Plan.

Yet on the left side, the “Reference case” with the CPP staying in force, we see electricity generation from coal fall significantly from 2020 to 2040, by almost 500 billion kilowatt-hours per year, or about a third.

To be clear, these EIA forecasts include assumptions about coal, natural gas, and renewables pricing and technological breakthroughs. Even so, the CPP in these forecasts made the difference between coal-generated electricity output holding steady versus falling by a third.

We at IER are not in the business of picking winners and losers in the energy sector. If coal loses market share because of developments in hydraulic fracturing and horizontal drilling, then consumers will benefit from more affordable energy.[1]

However, if coal is hampered by government regulations and/or taxes, then this makes energy more expensive. It does not represent innovation or a boon to consumers.

Myth #3: “The Clean Power Plan was essential to the battle against climate change.”

Earlier I pointed out that many critics of the Trump Administration were being inconsistent: On the one hand, they pooh-poohed the warnings that the CPP was hurting the coal sector. On the other hand, they went ballistic saying that the CPP was essential to stop climate change. Those positions can’t both be true.

However, the mirror-image of these claims can be true. Specifically, even though it’s true that the CPP would reduce US coal-fired power generation significantly, it does not follow that the CPP would significantly impact climate change.

For example, climate scientists Pat Michaels and Chip Knappenberger used a standard computer model to estimate that the Clean Power Plan, if it remained in force, would at most have made the global temperature in the year 2100 a mere 0.019 degrees Celsius lower than it otherwise would have been.

Conclusion

Some of President Trump’s most vociferous critics vacillate between mocking him for doing nothing, and freaking out because he’s doing what he said he’d do. No one can deny that Trump campaigned on ending the “war on coal.” The administration’s action on the so-called Clean Power Plan is consistent with that pledge. Contrary to the myths being floated by pundits and bloggers, there really was a war on coal, the fortunes of coal weren’t just due to natural gas prices, and ending the CPP won’t make a big difference to measured climate change.


[1] Some critics allege that “fracking” involves violations of property rights of local landowners. If this were the case, then the practice would not be beneficial to all consumers. Our statements in the text refer to a situation where all market transactions are voluntary.

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