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August 13, 2015

The Poor and Sick Suffer Under Obama’s Carbon Rule

August 13, 2015
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The Environmental Protection Agency (EPA) claims the finalized “Clean Power Plan” will have climate and health benefits for Americans worth tens of billions of dollars and save thousands of lives per year. Despite the rise in electricity prices that will result from the implementation of this rule, the agency asserts the regulation is a “historic step” toward combating climate change and improving public health.

However, the EPA has been extremely one-sided in its analysis of the costs and benefits of the rule. The rule requires states to reduce carbon dioxide emissions by 32 percent in 2030, though these emission reductions will have essentially no impact on global warming, reducing the rise in global temperatures by just 0.02 degrees Celsius in 2100. Because the climate rule will not affect climate change, the Obama administration relies on health co-benefits that have nothing to do with regulating carbon dioxide. These health co-benefits comprise over two-thirds of the total benefits, including EPA’s claim that the rule prevents thousands of premature deaths. The EPA has also turned to linking climate change to asthma to garner public support for the rule. While EPA claims its carbon rule will save lives, the agency fails to acknowledge how many deaths the plan may cause.

Specifically, EPA ignores the link between health and wealth. By increasing electricity prices and decreasing the disposable income of low-income families, the rule may end up causing far more premature deaths than it prevents, even if we accept the EPA’s numbers at face value. In fact, as explained below, our estimates indicate EPA’s rule could cause—on balance—14,000 more premature deaths by 2030. Vulnerable, low-income families, who spend a higher percentage of their incomes on energy, will be harmed the most—and could be forced to forgo necessities such as food, medical care, and prescription drugs. By forcing higher energy prices on American families, the rule will end up making the poor poorer and the sick sicker.

The EPA acknowledged this “health-wealth” connection in the past and has used it in economic analyses, stating: “people’s wealth and health status, as measured by mortality, morbidity, and other metrics, are positively correlated. Hence, those who bear a regulation’s compliance costs may also suffer a decline in their health status, and if the costs are large enough, these increased risks might be greater than the direct risk-reduction benefits of the regulation.”

Although the EPA used to appreciate the health-wealth link, EPA now ignores it to promote President Obama’s carbon agenda. Citing Executive Order 13563 in the Regulatory Impact Analysis for the Clean Power Plan, the EPA recounts that, “our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation.” Unfortunately, in neglecting to accurately assess the public health costs of the carbon rule, the EPA is poised to negatively impact Americans’ health, discourage economic growth, and destroy jobs—all for essentially no effect on climate change.

EPA’s Flawed Cost-Benefit Claims

EPA estimates that the net benefits derived from the carbon rule, a large portion of which are derived from estimated health benefits, will be between $26 and $45 billion in 2030, far outweighing their official $8.4 billion price tag. The EPA also acknowledges that this rule will increase electricity prices for consumers. Their estimates indicate that electricity prices will likely rise by an average of 3% by 2020, leading to job losses in several industries, but job gains in others (primarily green energy industries).

There are some notable flaws with EPA’s cost-benefit analysis of the rule. For one, their compliance cost estimates are very optimistic compared to similar economic analyses done by organizations, such as NERA Economic Consulting and the National Rural Electric Cooperative Association (NRECA). While the EPA claims the rule will cost American consumers about $8.4 billion, the NERA and NRECA studies paint a different picture. The NERA study estimates $366 billion in GDP losses by 2031, while the NRECA study estimates a 10 percent increase in electricity prices would result in GDP losses of $2.8 trillion by 2040. The NERA study also finds that 43 states would see double-digit percent rises in electricity rates. (Note: the NERA study examined the proposed rule, not the final rule. Since the final rule is stricter than the proposed rule, the actual costs are likely even higher than NERA estimated.)

Second, although the EPA acknowledges increased energy prices and job losses, the agency ignores the negative health outcomes associated with those economic impacts. There is a clear link between health and wealth, which EPA has previously acknowledged. By threatening the economic wellbeing of American families, EPA is threatening Americans’ health as well. EPA cannot fairly assess the impact of its rule on public health without addressing the fact that raising energy prices harms public health.

Health Costs of the Clean Power Plan

The EPA relies heavily on health co-benefits, which account for 67 – 83 percent of its total benefits, by 2030, as justification for the rule. Because the rule has little impact on climate change, the federal government uses health claims like asthma alleviation to justify the costly plan. At the same time, however, the EPA ignores the health-wealth link that demonstrates that the plan could actually have a large negative impact on health in America. By closing down existing coal-fired power plants and replacing them with new, costly alternatives like wind and solar power, the plan will increase electricity prices, destroy jobs, and decrease Americans’ disposable income. This is especially true for the poor, sick, and mentally ill, who spend a greater percentage of their income on energy.

But exactly how much damage will EPA’s carbon rule do to America’s health? Using the value of statistical life (VSL) of $10.1 million used by the EPA in their health benefits calculations, the negative impacts of the carbon rule become more apparent. Considering the numbers generated by the NERA study, losses of $366 billion could contribute to nearly 35,000 premature deaths by 2030.[1] . [2]

By contrast, EPA estimated that the final rule would result in 200 avoided premature deaths annually in 2020, 1,900 deaths avoided in 2025, and 3,600 in 2030. [3] Assuming a linear trend, IER estimates that EPA’s carbon rule could prevent about 21,000 total premature deaths through the year 2030.[4] Factoring in the health-wealth connection outlined above, that would mean EPA’s carbon rule causes 14,000 more premature deaths than it prevents.[5]

Premature-Deaths-Caused-by-EPA's-Clean-Power-Plan

Source: Based on IER Calculations of Environmental Protection Agency and NERA Economic Consulting data

Of the over with annual incomes less than $10,000, 32 percent went without food for at least a day, 42 percent went without medical or dental care, and 38 percent did not fill a prescription or took less than the full prescribed dose, according to the National Energy Assistance Directors’ Association. These numbers will only increase as vulnerable American families are forced to sacrifice food and healthcare for increased energy prices.

Conclusion

The EPA’s climate rule has no discernible impact on climate change and may cause thousands of premature deaths in the United States. The EPA relies on faulty data to make exaggerated claims about the benefits of a rule that will cost Americans hundreds of billions of dollars and plunge millions of families into poverty. The loss of disposable income due to higher energy bills will leave families with less money to spend on health care, prescriptions, and other essentials. Therefore, EPA should withdraw its expensive and harmful carbon regulation.


[1] The number of premature deaths caused by the plan by 2030 was calculated by dividing the NERA’s estimate of lost GDP through 2031 ($366 billion) by EPA’s valuation of $10.1 million (2011$) for every one premature death in 2030. First, the $366 billion was adjusted to 2011$ and the resulting number ($353.4 billion) was divided by $10.1 million to get our estimate of 34,990 premature deaths caused by the plan. (Note that our estimate is a conservative one, because EPA’s valuation of a human life is lower in earlier years, so that when we divide the cumulative compliance figure by $10.1 million, we are dividing by a bigger number than is completely accurate for the estimate.)

[2] The number of premature deaths caused by the plan by 2030 was calculated by dividing NERA’s cost estimate through 2031 ($366 billion) by EPA’s valuation of $10.1 million (2011$) for every one premature death in 2030. The $366 billion was adjusted to 2011$ and the resulting number ($353.4 billion) was divided by $10.1 million to get an estimate of 34,990 premature deaths caused by the plan. This estimate is a conservative one, because EPA’s valuation of a human life is lower in earlier years (e.g. 2020), so that when we divide the cumulative compliance figure by $10.1 million, we are dividing by a bigger number than is completely accurate for the estimate.

[3] See pp. 4-29–4-31 of the Regulatory Impact Analysis. IER added the highest avoided premature mortality numbers related to PM2.5 and ozone and rounded up to the nearest hundred. The result was a prevention of 20,900 cumulative premature deaths through the year 2030.

[4] EPA’s Regulatory Impact Analysis for the rule outlines an estimated 200 avoided premature deaths annually in 2020, 1,900 deaths avoided in 2025, and 3,600 in 2030 (numbers rounded to up to nearest hundred.) Assuming a linear trend, we estimate that—according to its own calculations—EPA’s carbon rule could prevent 20,900 cumulative premature deaths through the year 2030.

[5] Since the number of premature deaths is considered from the 2020-2030 time period and NERA’s estimates cover the period from 2017 to 2031, there is some uncertainty involved in IER’s calculations. Nevertheless, IER’s estimates demonstrate large economic compliance costs that implicate the health of individuals and contribute to premature mortality.

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  • d3dhemmer

    On 17 April 2015, a group of countries known as the Friends of Fossil Fuel Subsidy Reform, together with the United States and France, launched a Communiqué to promote the elimination of in-efficient fossil fuel subsidies in the lead-up to the major climate change conference in Paris COP21. http://fffsr.org/

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