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June 17, 2014

EPA’s Power Plant Rule: All Economic Costs; No Climate Benefits

June 17, 2014
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On June 2, 2014, at President Obama’s direction, Environmental Protection Agency (EPA) released its proposed rule mandating carbon dioxide emission cuts for existing power plants. This rule is designed to comply with the president’s plan to make electricity rates “necessarily skyrocket” by reducing the use of coal-fired electricity generation from existing power plants—one of the cheapest sources of electricity generation. While the rule will result in increasing electricity rates, the rule will not have any material climate benefit despite the fact that the climate is the justification for the rule.

The Proposed Power Plant Rule

In 2009, during the United Nations accord in Copenhagen, Denmark, President Obama gave his personal pledge that the United States would cut its greenhouse gas emissions 17 percent from 2005 levels by 2020, and 83 percent by 2050[i]. However, this pledge was never agreed to by Congress and President Obama never even petitioned Congress to ratify this commitment.

Though the United States has already reduced carbon dioxide emissions in 2012 by 12 percent from 2005 levels due mainly to natural gas displacing coal in the generation sector and a continuing weak economy, President Obama is not willing to let market forces determine if his 17 percent goal will be reached. As a result, EPA has promulgated a rule to mandate the reductions of carbon dioxide emissions from the power sector by 30 percent from a “2005 baseline” by 2020—a sector that has already reduced emissions from its actual 2005 base by 16 percent.  The proposed rule provides each state with a target and a set of options that EPA has determined will allow them to reach their assigned requirements.

According to EPA’s analysis, even though this rule is supposed to be about climate and temperature, there are no meaningful climate or temperature benefits. In a 654-page rule, EPA failed to devote a single sentence to explaining the climate benefits of the rule. The reason is simple—the benefits are minuscule. EPA’s omission is even more glaring because EPA has previous calculated the climate impacts of their rules on carbon dioxide using EPA’s own MAGICC model. To remedy EPA’s omission, Cato Institute used EPA’s MAGICC model to calculate the projected climate benefits of EPA’s rule. EPA’s climate model calculates that the temperature reduction from the proposed rule to be a mere 0.018 degrees Centigrade by 2100.[ii] It is important to note that these are only projections based upon computer models which have overestimated observed temperature change for almost 17 years.  Even so, the Cato analysts point out that they are not even sure how to put such a small number into practical terms because the number is so small as to be undetectable, which surely is why EPA did not bother to include it in its analysis.

Despite undetectable climate benefits from a “climate rule,” EPA calculates the rule will cost between $7.3 billion and $8.8 billion dollars. They cite climate benefits and health co-benefits that EPA says are already being reduced by other EPA regulations (e.g. MATS). EPA projects national job losses of 72,000 to 77,900 from 2021 to 2025 in plant construction and mining. But EPA also estimated there would be 76,200 to 112,000 jobs created in 2025 due to the boost the regulations would give to the energy efficiency sector, which is a significant part of its suggested path to reach the state required reductions.[iii]

No other analysis has been done to date on the rule to assess its assumptions and its analytical honesty, due in large part to the difficulty of understanding what the rule entails in its 645 pages and hundreds of pages of supplemental material. The Chamber of Commerce released an analysis performed by the research and analytics firm IHS that modeled a 40 percent reduction in power plant carbon dioxide emissions from 2005 levels by 2020 and found the costs to be much greater[iv].

At first blush, it might seem like an apples-to-oranges comparison to compare EPA’s 30 percent reduction from a “2005 baseline” to the Chamber’s 40 percent reduction. It turns out, however, that EPA’s “2005 baseline” is not actual carbon dioxide emissions in 2005, but EPA’s calculation of what carbon dioxide emissions would have been in 2005 if states had taken measures that EPA bureaucrats approved of. When you calculate the real baseline, EPA’s rule will result in larger reductions than the 30 percent that the media repeats from EPA’s press release.

Here is what the Chamber’s study found would be the result of a 40 percent reduction in carbon dioxide emissions:

  • 224,000 jobs lost on average each year through 2030,
  • more than $50 billion in average annual GDP loss through 2030, with a peak GDP loss of almost $104 billion in the year 2025,
  • $289 billion in additional cumulative electricity payments by consumers from 2014 through 2030,
  • a cumulative reduction of $586 billion in disposable income from 2014 through 2030,
  • $480 billion in cumulative compliance costs by electricity providers through 2030, and
  • an average undiscounted economic cost of $143 per ton of carbon dioxide reduced.

The disparity is huge as the cumulative compliance costs differ by a factor of 54.5 ($480 billion compared to $8.8 billion) and begs the question of a line by line comparison of assumptions and results.

Conclusion

President Obama ordered the EPA to issue a rule to make Americans bear higher energy prices to reduce our carbon dioxide emissions. He is increasingly alone in the world in trying to restrict access to affordable, reliable energy as countries abandon parallel efforts in the wake of economic destruction and damage to their electrical grid, the poor and many industries.[v]   Almost all other countries are continuing to use natural gas, coal, and oil heavily to provide affordable and reliable energy to their citizens to help their economies grow and increase the welfare of their citizens. The EPA’s new proposed power plant rule for existing plants will cost this country and its consumers far more than EPA projects as more detailed analyses become available comparing assumptions and results will foretell. It is clear from the data that fossil fuels will continue to be used and that President Obama’s example will do nothing more but hurt the welfare of Americans, while doing nothing to change the temperature or the climate.

 

[i] New York Times, Obama to Take Action to Slash Pollution, June 1, 2014, http://www.nytimes.com/2014/06/02/us/politics/epa-to-seek-30-percent-cut-in-carbon-emissions.html?emc=edit_th_20140602&nl=todaysheadlines&nlid=63692790&_r=2

[ii] Cato Institute, 0.020C Temperature Rise Averted: The Vital Number Missing from the EPA’s “By the Numbers”  Fact Sheet, June 11, 2014, http://www.cato.org/blog/002degc-temperature-rise-averted-vital-number-missing-epas-numbers-fact-sheet

[iii] Environmental Protection Agency, Regulatory Impact Analysis for the Proposed Carbon Pollution Guidelines for Existing Power Plants and Emissions Standards for Modified and Reconstructed Power Plants, June 2014, http://www2.epa.gov/sites/production/files/2014-06/documents/20140602ria-clean-power-plan.pdf

[iv] Chamber of Commerce, Assessing the Impact of Proposed New Carbon Regulations in the United States, May 2014, http://www.energyxxi.org/epa-regs#

[v]Environment and Public Works, U.S. Should Learn from Europe’s Depressing Energy Crisis Before Enacting New Carbon Rules, June 10, 2014, http://www.epw.senate.gov/public/index.cfm?FuseAction=Minority.PressReleases&ContentRecord_id=48aef240-93de-e4fe-52c9-b4473cf4c235&Region_id=&Issue_id=


View Comments
  • Dondh

    The EPA must go along with this oscumbo administration ASAP before they totally destroy our country, or should I say formerly great country before 2009!

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