The Institute for Energy Research is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets.

About IER
Latest Analysis
August 4, 2015

Obama’s Final Carbon Rule Combines Fake Carrots and a Big Stick

August 4, 2015
Print Friendly
Facebook

On Monday, the Obama administration released the final version of its so-called “Clean Power Plan” regulating carbon dioxide from existing power plants. While the president claims this regulation is “a historic step in the Obama Administration’s fight against climate change,” the rule has no effect on climate change, according to EPA’s own models. The climate benefits are so small that EPA didn’t even bother to quantify them, reducing global temperatures by just 0.018 degrees Celsius by the year 2100. But while it fails to address climate change, the rule will raise energy prices and make life harder for millions of American families.

There are key differences between the proposed and final rule. The final rule increases “incentives” for costly wind and solar at the expense of natural gas; it pressures states to join regional cap-and-trade schemes; it strips out the energy efficiency building block; it extends the deadline for state plans in an empty gesture to appear “flexible”; it forces steeper overall emission cuts; and it slashes by two-thirds the only building block that directly regulates carbon dioxide from existing power plants.

As we explained last year, the proposal was bad enough, but the administration decided to double down and make it even worse. Each of these changes, explained below, will be touted by the Obama administration and national environmentalist groups as “common sense” measures meant to give states “flexibility.” In fact, these changes make the regulation even more harmful—given the negative impacts on American families, the real “common sense” decision is for states to reject EPA’s call for state plans.

A “Clean Energy Incentive” Trap

What EPA changed: Established a Clean Energy Incentive Program to “reward early investments in wind and solar generation, as well as demand-side energy efficiency programs implemented in low-income communities” before 2021.

What it means: With resistance at the state level growing, the administration recognized that getting states to implement this rule immediately is more important than ever. In response, the administration is doling out gifts to willing partners and attempting to bribe those on the fence. These changes make the final regulation even more expensive than the proposal.

The proposed rule relied on natural gas to replace lost coal output (Gina McCarthy once called the natural gas boom a “game changer” in EPA’s ability to control carbon dioxide). Mandating wind and solar instead of natural gas—as the final rule does—will raise electricity prices: a study by IER found that electricity from existing coal plants is three times less expensive than electricity from new wind facilities. In any event, wind and solar can only replace coal on paper, not in the real world, because wind and solar cannot produce electricity reliably. Instead, they depend on the weather, which may or may not cooperate at times of high electricity demand.

These “clean energy incentives” are a trap laid for states. EPA is dangling a carrot in the form of tradable “emission rate credits” to dupe states into aggressively expanding wind, solar, and energy efficiency over the next four years instead of building more affordable natural gas plants. If states commit to these uneconomic investments before a final court decision, they won’t be able to undo the damage. The program is also a blatant pander to environmental activists who loathe the idea of natural gas as a “bridge fuel” to a wind and solar future.

A “Model Rule” for Interstate Cap-and-Trade

What EPA changed: Proposed a “model rule” for interstate cap-and-trade that states “can adopt right away” in lieu of submitting a state plan.

What it means: This is another trap laid by EPA. Just as with the wind and solar incentives, EPA is enticing states to quickly commit to costly carbon-trading schemes the feds have no authority to impose themselves and that have proven costly when they’ve been tried elsewhere. States that adopt this approach will lock in higher electricity prices for their citizens that cannot be undone even if the courts invalidate the rule. Once low-cost coal plants are shuttered and ground is broken on costly wind and solar facilities, there is no going back. As a result, states should reject these bribery attempts.

EPA Stops Trying to Force Americans to Use Less Energy

What EPA changed: Removed the fourth “building block” forcing Americans to use less energy (energy efficiency).

What it means: The rule will be even more expensive. This was the one building block that was projected to make the rule less expensive. Despite shutting down affordable coal resources and building new, expensive wind and solar, EPA assumed the proposed rule would actually save families 9 percent on their utility bills in 2030 if states adopted energy-efficiency measures. Stripping out this building block calls into question these potential “savings” in the proposed rule. It is also an implicit admission by President Obama that EPA has no legal authority to come into our homes and tell us to use less energy.

EPA Gives States Two Extra Years to Comply with Costly Rule

What EPA changed: Gave states an extra two years to submit “final” state plans (2018) and begin implementing the rule (2022).

What it means: EPA is concerned states will refuse to submit implementation plans (already six governors have said they don’t intend to). Yet EPA’s change is an empty gesture, not a serious effort to address states’ concerns. It is meant to portray the administration as “flexible” and claim that submitting a state plan is “common sense.” However, any appearance of “flexibility” is a mirage: EPA is still requiring “initial” state plans by 2016 and is dangling “incentives” to get states locked in to taking early action on wind and solar expansion and on forming regional cap-and-trade schemes. Ordering states to remake the nation’s power grid using expensive and inferior technologies in seven years instead of five should be met with scorn, not gratitude.

EPA Mandates Larger Cuts on Carbon Dioxide

What EPA changed: Increased total carbon dioxide reductions by 6.5 percent, from 30 percent to 32 percent in 2030 over 2005 levels.

What it means: The final regulation is even more expensive but still has no impact on climate change. The proposed rule was estimated to cost $366 billion and raise electricity prices by double-digits in 43 states. Under the more stringent, final version, electricity prices will soar even higher, especially since the final version relies more on costly wind and solar than affordable natural gas. For all that pain, the final rule reduces global temperatures by just 0.02 degrees Celsius by 2100.

EPA Recognized it Overestimated Heat-Rate Improvements from Coal Plants

What EPA changed: Reduced heat-rate improvements on coal-fired power plants by two-thirds, from 6 percent to 2 percent.

What it means: EPA has mostly given up on trying to regulate carbon dioxide directly from existing power plants. This, despite the fact that the title of the regulation is “Carbon Pollution Guidelines for Existing Power Plants.” Instead, EPA will attempt to reduce carbon dioxide emissions by forcing states to restructure their entire electric power systems, which EPA has no authority to regulate under federal law.

EPA implicitly admitted its legal limitations by stripping energy-efficiency requirements, but the final rule is still illegal because EPA has no authority to require states to use more natural gas, wind, and solar. Yet the final rule is so stringent (and stricter than the proposal) that states have no choice but to impose costly and unwanted wind and solar sources on their citizens. This is even truer now that the final rule increases the overall reduction target by over 6 percent while reducing by two-thirds the percentage of that target that will come from direct regulation of coal plants. Obama knows states will have to make up that difference somewhere—through costly green-energy policies he has no authority to impose himself.

Conclusion

President Obama appears to be keeping his promise to make electricity prices necessarily skyrocket. Actually, the reality is even worse: he’s making electricity prices skyrocket unnecessarily. For all the time, money, jobs, and resources wasted on complying with this regulation, it will reduce global temperatures by just 0.02 degrees Celsius over the next 85 years.

The president claims his administration conducted “extensive outreach” and made changes that “result in a fair, flexible” final rule. These claims are all public relations talk with no basis in reality. The final rule is even worse than the proposal: it is still an illegal assault on states, it raises electricity prices even more than originally thought, it poses an even larger threat to the electric grid, and it still does nothing to address climate change. Now more than ever, states should reject President Obama’s costly carbon agenda and refuse to submit state plans.

Print Friendly

View Comments
Back to top