You would never know from reading Paul Krugman’s recent blog post and column that the Environmental Protection Agency is about impose--without any input from the Congress--the most expensive regulatory program in its history. Instead, he would have you believe that new regulations governing carbon dioxide emissions from power plants costing $859 billion in lost economic growth over 17 years—nearly a trillion dollars—is no big deal. One wonders how much of a hit the economy has to take before Krugman takes notice.
So what do we get for such a bargain? Why, nothing less than “dramatic steps on climate — steps that would transform international negotiations, setting the stage for global action.”
Except none of that is true.
The Institute for 21st Century Energy’s analysis shows that $859 billion in lost economic growth would buy about 6 billion tons of carbon dioxide reductions at an average cost of $143 per ton. That’s remarkably expensive, about 74% higher than the comparable cost per ton ($82) based on the Energy Information Administration’s analysis of the Waxman-Markey cap & trade bill. To put this in perspective, the going price for a ton of carbon dioxide in Europe today is about seven bucks.
More telling, the cost per ton is much higher when compared to the Obama Administration’s latest and wildly inflated social cost of carbon estimates. In other words, the economic costs of the regulations far outweigh their climate benefits, and it’s not even close.
Of course, the rest of the world will continue to emit carbon dioxide with abandon. Even with these rules, by 2030 global emissions will still be about 29% higher than in 2011. So it’s all pain for no gain.
Anyone who thinks this job-killing gesture will transform the international negotiations hasn’t been paying attention these last 20 years. Krugman seems to be completely unaware that Europe tried leading by example, and it didn’t work. And little wonder. The primary interest of developing countries is providing affordable energy to their people to lift them out of poverty. They have little interest in making cheap energy expensive, and they’ll continue to develop using fossil fuels. Nothing EPA does is going to change that.
Finally, it’s a bit rich for Krugman, just appointed distinguished professor at City University of New York’s new income inequality institute, to pooh-pooh 224,000 fewer jobs each year out to 2030. But I guess when you’re not earning an income, you can hardly contribute to income inequality. Problem solved!
To conclude, EPA’s regulation of carbon dioxide emissions from power plants will cost the economy nearly $1 trillion, result in hundreds of thousands of fewer jobs each year, provide no climate benefit according to the administration’s own exaggerated estimates, and do virtually nothing to lower global emissions. Krugman thinks that’s “remarkably cheap.” Consumers and businesses know better.
Taking advantage of America’s abundance by exporting oil would be a job creator and an economic growth engine, two new reports find.
A study by IHS concludes that opening markets for U.S. crude would spur domestic investments oil production. From 2016-2030 an additional $746 billion would be invested and an additional 1.2 million barrels per day of oil would be produced per year. This would translate into an additional 394,000 jobs per year with a peak of 964,000 in 2018.
Exporting oil would produce such economic gains because there are different types of oil and different types of refineries to handle them, as the Washington Examiner explains:
Gulf Coast refineries are designed to handle heavier crude from abroad, and it's often not economical for them to take the lighter varieties coming from the Bakken shale formation in Montana and North Dakota.
IHS director and study co-author James Fallon adds:
And as a result of the boom in tight oil production, the U.S. is exceeding its capacity to process that type of crude. Current export restrictions mean that light crude has to be sold at a sharp discount to compensate for the extra cost of refining it in facilities that were not designed for it. That gridlock is preventing additional investment and production—and the additional economic benefits—that could otherwise take place.
This oil-refinery mismatch was the focus of Energy Secretary Moniz’s recent comments on reconsidering the oil export ban.
A separate analysis by ICF International and EnSys Energy for the American Petroleum Institute examined the state-by-state benefits of exporting oil. Mark Green writes at Energy Tomorrow:
* Nine states – Florida, Michigan, Indiana, California, New York, Pennsylvania, Ohio, Texas and North Dakota – could see more than $1 billion each in state economic gains in 2020.
* Eight states – Illinois, Florida, New York, Pennsylvania, Ohio, California, North Dakota and Texas – could gain more than 10,000 jobs each in 2020. Again, a total of 18 could see more than 5,000 new jobs.
* States with significant manufacturing and consumer spending, such as California, could add nearly 24,000 jobs and more than $2 billion in economic activity in 2020. New York, an international hub for trade and finance, could add more than 15,000 jobs and $1.95 billion in economic activity in 2020.
More jobs and greater economic growth: That's what we would see by lifting the nearly 40-year old ban on oil exports.
Apparently, the Energy Institute’s report detailing the economic impacts of potential carbon regulations has gotten the Administration’s attention. Considering EPA is about to propose the largest, most costly and most significant rule in its history, we consider that a good thing.
So let’s take a look at EPA’s response, from Associate Administrator for External Affairs Tom Reynolds:
First, before EPA even put pen to paper to draft the proposed standards, we gathered an unprecedented amount of input and advice through hundreds of meetings with hundreds of groups—including many members of the Chamber. That input fed into the draft proposal we’ll release on June 2, and we plan to kick off a second phase of engagement as we work through the draft and get to a reasonable, meaningful final rule.
Indeed, the U.S. Chamber and our members have been engaged with EPA for years in an attempt to improve EPA’s regulations. However, it should be noted that EPA’s much heralded “listening sessions” to receive input on potential carbon regulations completely avoided the ten states that are most dependent on coal for electricity. As the leaders of 13 state chambers of commerce noted to EPA last fall, the public engagement tour included cities such as San Francisco, New York, and Boston while avoiding areas of the country that will be most affected.
We take EPA at its word that they want input from industry on their rules, and that was part of the reason why we decided months ago to embark on a project to produce a comprehensive, transparent analysis of how potential regulations could impact the economy.
Second—the Chamber’s report is nothing more than irresponsible speculation based on guesses of what our draft proposal will be. Just to be clear—it’s not out yet. I strongly suggest that folks read the proposal before they cry the sky is falling.
We based our analysis on NRDC’s proposal, which they themselves have indicated is likely to be close to what EPA will be releasing.
We are well aware that EPA has not yet released its rule, and our CEO, Karen Harbert, was very clear today that the Chamber is not taking a position on the rule at this time precisely because we haven’t yet seen the regulation.
Our purpose when we began this project months ago was to provide a baseline analysis of what it would cost to meet President Obama’s stated emissions reduction target of 42% by 2030. While EPA hasn’t released its rule, the Obama Administration has endorsed this emissions trajectory in Copenhagen.
Third, there are some major gaps in the numbers touted by the Chamber:
Actually, EPA only identifies one “gap,” so that seems to be an overstatement.
The Chamber report assumes that States would need to require carbon capture and sequestration (CCS) for new natural gas plants to hit their goals under the proposal for existing power plants. That’s not true. Not even the EPA’s proposal for new power plants requires that technology for natural gas. And EPA has indicated frequently that CCS would not be considered for existing power plants. Given that three-fourths of the Chamber’s alleged cost estimates come from power plant construction—namely, natural gas with CCS plants—this assumption drives up the topline cost associated with this study.
The modeling by IHS shows that there is simply no way to achieve a 42% reduction in emissions by 2030 without CCS on new natural gas plants. If EPA doesn’t believe us, perhaps they should listen to their own Administration’s Secretary of Energy:
[Energy Secretary] Moniz said that while natural gas is a "bridge fuel" that has proved effective at limiting coal use and supporting renewable energy use, unregulated gas use will not continue indefinitely. In order to meet the administration's midcentury targets of reducing greenhouse gases by 80 percent compared with 2005 levels, gas plants must also someday reduce their emissions.
"Eventually, gas itself would need to be either phased out or have the CO2 captured if we were going to go to a very, very low-CO2 world," he said.” (Source: E&E News, 5/19/14)
So the question is: Is EPA today signaling that the Administration is backing off from its stated climate goals? How would they propose meeting their 2030 and 2050 climate targets without CCS on new gas plants?
Furthermore, our study does not assume CCS on any existing sources, either now or in the future, as Mr. Reynolds claims. We encourage him to read the study.
Finally, EPA’s response discusses the need to act on climate change.
Our report gives global context to potential EPA regulations. Even with aggressive regulations crafted to meet an aggressive climate target, global greenhouse gas emissions are only reduced by 1.8%. That is weighed against significant impacts to jobs (an average of 224,000 fewer jobs per year), GDP (lost GDP of $51 billion per year), and higher electricity costs ($17 billion more per year).
Our report undertakes an analysis that to date, EPA has not—what the costs associated with climate regulations will be. We think the costs are significant, but most importantly, we want the American people to have a thorough and clear understanding of the costs and choices that will need to be made.
We welcome EPA’s interest in our study, and we look forward to reviewing regulations when they come out next week.
Next week, it’s expected that President Obama will personally announce EPA’s latest effort to transform how America generates electricity. Remember in 2008, when Candidate Barack Obama said, electricity prices would “skyrocket?” This is what he meant, and it will affect every element of economic activity.What is EPA about to do?
Next week, EPA will release carbon emission regulations for already-existing power plants. It’s a follow-up to last-year’s proposed regulations on new power plants.How damaging could these regulations be on our economy?
The U.S. Chamber of Commerce’s Institute for 21st Century Energy released a report, “Assessing the Impact of Proposed New Carbon Regulations in the United States,” prepared with the assistance of the global energy and economics firm IHS. The analysis found that by 2030 potential new carbon regulations could:Cost as many as 442,000 jobs in 2022 and put 224,000 Americans out of work, on average, annually Cost $51 billion in GDP loss annually Lower disposable household income by 586 billion Increase electricity costs by more than $289 billion.
The report is based on an existing plan developed by the Natural Resources Defense Council (NRDC) and the Obama administration's previously-announced goal of reducing greenhouse gas emissions to 42% of 2005 levels by 2030. “We considered it as close as we could get to what the administration would be unveiling next week,” Karen Harbert, president and CEO of the Energy Institute said at a press conference.
Harbert added, “Americans deserve to have an accurate picture of the costs and benefits associated with the administration's plans to reduce carbon dioxide emissions through unprecedented and aggressive EPA regulations.”
The report finds that the costs of reinventing America's electricity generation mix will be enormous [emphasis mine]:
When the costs for new incremental generating capacity, necessary infrastructure (transmission lines and natural gas and CO2 pipelines), decommissioning, stranded asset costs, and offsetting savings from lower fuel use and operation and maintenance are accounted for, total cumulative compliance costs will reach nearly $480 billion (in constant 2012 dollars) by 2030.
To put this into perspective, at an annual cost of $9.6 billion annually, the Mercury and Air Toxics Standard (MATS) is EPA’s most-expensive regulation on power generation. Potential EPA carbon regulations could be “nearly triple that amount, at $28.1 billion annually” from 2014-2030, the report finds.How will this affect consumers?
Since the United States isn’t a homogenous mass, these potential rules will affect different areas of the country differently depending on what fuel sources they rely on and are able to tap for electricity generation. The report finds that the most damaging effects on jobs and the economy will be felt in much of the south and the Great Lakes region.Map: Average Annual GDP and Job Losses from Potential EPA Carbon Regulations
As for electricity prices, if you live in the South power region—much of the Southeast from Tennessee to Florida--expect to see the highest increases: $6.6 billion on average annually and $111.4 cumulatively from 2014-2030.Map: Average Annual Increase of Electricity Costs from Potential EPA Carbon Regulations What about coal?
Coal-fired power plants will take more hits. Already, coal-fired power plants are under regulatory pressures. Potential carbon regulations will only add to their troubles. In February, the Energy Information Administration predicted that nearly one-fifth of all coal-fired power plants would shut down by 2016 because of the Mercury and Air Toxics Standards (MATS) rule. The report estimates that an “additional 114 gigawatts—about 40% of existing capacity” will go offline by 2030 because of new carbon rules. As a percentage, electricity generated by coal will fall from 40% to 14%, while natural gas’ share of generation will rise from 27% to 46%.Are the costs worth it?
Maybe you look at these numbers and say, “Well, that’s the price we’ll have to pay to reduce carbon emissions.” Let’s put it in the context of the global economy. The analysis estimates that potential carbon rules will reduce U.S. carbon dioxide emissions by 750 million metric tons in 2030. That’s only 1.8% of the global emissions predicted by the International Energy Agency. Using IEA's numbers, the report states, “the rest of the world will increase its power sector CO2 emissions by nearly 4,700 million metric tons (MMT), or 44%” from 2011-2030. So even aggressive U.S. emissions reductions will be overshadowed by the rest of the world, resulting in a true “All Pain, No Gain” scenario for the American economy.
"Is this the approach we want to take?" Harbert asked at the press conference.
That’s the question President Obama must answer and the debate the public needs to have.
What’s clear is these carbon rules are another example of Washington bureaucrats picking energy winners and losers. The biggest losers will be Americans who lose their jobs and feel the brunt of higher electricity costs.