U.S. CHAMBER OF COMMERCE

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US Chamber of Commerce Blog

Sean Hackbarth President Obama speaks about EPA carbon regulations at an event in the White House. President Obama speaks about EPA carbon regulations at an event in the White House. Photo credit: Olivier Douliery/Bloomberg.

In January 2008 when he was running for President, then-Senator Obama, said, "[E]lectricity rates would necessarily skyrocket.... [W]hatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money. They will pass that money onto consumers."

Obama: My Plan Makes Electricity Rates Skyrocket


Unfortunately for every American who uses electricity, President Obama is keeping this promise.

After failing to get legislation passed through a Congress controlled entirely by his own party, President Obama turned to EPA to impose carbon regulations. Based on some creative reading of the Clean Air Act, it came up with the Clean Power Plan.  

The final version calls for a 32% cut in carbon emissions from power plants by 2030. This is more drastic than the 30% cuts found in the draft released in 2014.

Under the plan, EPA will set carbon emissions goals for each state. By 2018 states must submit plans on how each will cut carbon emissions to EPA and meet their first targets by 2022. Should states refuse to submit plans--Indiana's Mike Pence and Oklahoma's Mary Fallin have announced their state won't--or miss the deadline, EPA will impose a plan on them.

What should we expect from EPA's power grab? To get a sense, look at California, the Northeast, and Germany.

California

To reduce carbon emissions, California state policy mandates that by 2020, one-third of its electricity must come from renewables. The result has been higher electricity costs, Jonathan Lesser of Continental Economics explains:

Despite projections of imminent cost-competitiveness with fossil fuels, renewable generation continues to be considerably more expensive. During 2003-2013, overall average cost of renewable generation acquired by the aforementioned utilities rose by 55 percent, from $54/MWh to $84/MWh. In contrast, in 2013, the average wholesale market price of generation was slightly more than $46/MWh.

And it's making it harder for many California residents to pay their energy bills:

In 2012, nearly 1 million households spent more than 10 percent of their income on energy bills. In hotter, less affluent inland counties, the rate of energy poverty was as high as 15 percent of households.

Northeast

Moving east, we see that the New England states and New York are part of a carbon emission cap-and-trading scheme that squeezed out cheaper coal-generated electricity. It's not surprising that these states have some of the highest electricity prices in the U.S., as this Institute for 21st Century Energy map shows.

022116_energy_ei21_electricretail_map_800x533.png Germany

Let's cross the Atlantic to Europe. Germany has been undergoing the Energiewende, a nationwide policy of embracing solar and wind, while shunning coal power, and abandoning nuclear power.

This has been a costly transition. As the chart below shows, Germany's electricity rates, already double that of the U.S. in 2008, have continued to rise.

forbes-craig-percy-us-germany-industrial-electricity-costs.jpg  Average industrial electricity costs per kilowatt-hour for the United States and Germany. Chart: Average industrial electricity costs per kilowatt-hour for the United States and Germany.

Higher energy costs are one reason why German companies are looking to build production in the U.S. The New York Times reported in 2014 on German chemical giant BASF choosing to invest in the U.S. because of higher local energy prices:

Already, BASF has doubled its annual investment in the United States to about $1 billion a year. With its French partner Total, it recently completed an estimated $400 million expansion and upgrade of their petrochemical plant in Port Arthur, Tex., which employs about 250 people.

...

"We shift investment money from Europe into the U.S. as a consequence of the less competitive environment in Europe," Harald Schwager, a senior member of BASF's executive board, said in an interview here.

...

Over the next five years, BASF plans to pump a quarter of its planned EU20 billion in investments into North America. For the first time, the company plans to trim its spending in Germany from its traditional level of at least a third of investment to only a quarter.

Right now, low-cost electricity makes the U.S. more globally competitive. By raising electricity prices, EPA's carbon regulations will shrink this competitive advantage.

It's no surprise business groups condemned the carbon regulations. "It is a bad deal for America," said U.S. Chamber President and CEO Tom Donohue in a statement:

The EPA's effort to shut down existing power plants and thus drive up energy prices for businesses and consumers alike will inflict significant damage to our entire economy and reduce our nation's global competitiveness without any significant reduction in global greenhouse gas emissions. It is a bad deal for America, and we will pursue all available options, including litigation if necessary, to block EPA's regulatory power grab from taking effect.

As for President Obama, should the plan withstand an expected lengthy legal fight, he'll be out of office by the time higher electricity prices impose a heavy weight on the economy.

Further resources:

The National Rural Electric Cooperative Association published a map showing all the power plants affected by EPA's carbon regulations. The Washington Post published a set of maps showing how the U.S. gets its electricity.
Sean Hackbarth Grain rail cars.Line of grain rail cars. Source. U.S. Department of Agriculture.

In fall 2014, Great Plains farmers grew frustrated as clogged rail lines forced grain to pile up at local grain elevators.

Too much stuff was trying to go over a limited amount of track. Grain cars were competing for space on trains with oil tankers moving crude oil from the Bakken region and Canada.

I heard about the effects of congested track when I traveled west, last year:

Tom Kauer, president of the South Central Development Corporation, told us that as more Canadian oil travels by rail, less grain can be moved.  "Millions of bushels are sitting on the ground," he said.

According to Mona Madler, executive director of the Southeast Montana Area Revitalization Team in Baker, Mont., the situation got so bad some farmers were "dumping grain on the ground."

While America's oil boom has been lower prices and more energy security, it's been a headache for some farmers, as the American Farm Bureau Federation noted in a report.

It points out that 39% of all grain shipped by rail came from the Upper Midwest (Minnesota, North Dakota, South Dakota, and Montana). At the same time, these same states saw oil car load increases of 10,000 or more from 2007-2012.

map_oil_carload_changes_2007-2012.jpg  2007-2012Map: Oil train car load changed: 2007-2012

There wasn't enough rail capacity for all the grain and oil. "Oil's rail routes directly pull resources, like locomotives, personnel, and track capacity, away from grain service," reads the report. Grain-packed  elevators, longer shipping times, and lost opportunity costs, resulted in a big economic hit to farmers:

The USDA estimates grain and oilseed producers throughout the Upper Midwest may have received $570 million less for the crops they marketed in 2014 than they could have earned in a normal freight environment.

For instance, the average North Dakota corn farmer lost $10,000 in income.

This fall, the situation might be better. Lower oil prices have reduced Bakken production meaning traffic might not be as bad on the rails. But oil producers are nimble and can crank up production quickly. We could quickly see grain cars again be competing with oil tankers for scarce rail space. This transportation problem can't be ignored.

A long-term solution will involve taking some of the stress off the rail system. Now, you can't shove wheat or corn through a pipeline, but you can do that with oil.

"Crude oil, however, can be more efficiently and affordably shipped through pipelines, and can be done without crowding already overstressed railways," said report author Elaine Kub.

If you've been reading me for a while you know where I'm going: The Keystone XL pipeline.

chart_freed_grain_capacity_pipeline.jpg  Freed rail capacity for grain cars if a pipeline were built.Chart: Freed rail capacity for grain cars if a pipeline were built.Source: American Farm Bureau Federation.

The pipeline would transport 830,000 barrels of oil a day--100,000 from the Bakken in Montana and North Dakota. If an oil rail car can carry roughly 700 barrels of oil, then the Keystone XL pipeline's capacity would mean 1185 fewer oil tankers jamming up rail lines each day. The freed up capacity would be enough to move 11 grain trains--3.85 million bushels--daily, the Farm Bureau report finds.

Now, the pipeline wouldn't be a magic pill for transport backlogs, but building it would ease stress on the rail system as well as on farmers who depend on it.

Now, the pipeline wouldn't be a magic pill for transport backlogs. all modes of transport will continue to be needed. President Obama sitting on the Keystone XL permit shrinks the options, while building it would ease stress on the rail system as well as on farmers who depend on it.

Sean Hackbarth Electricity towers in Underwood, North Dakota. Photo credit: Daniel Acker/Bloomberg.

States continue to resist EPA's overreaching carbon regulations. Officials in southeastern states strategized the best ways to fight back:

Momentum is building across the Southeast toward a "just say no" campaign for U.S. EPA's final Clean Power Plan rule, expected to be released within weeks.

A panel of lawmakers at the Southern Legislative Conference (SLC) yesterday passed a resolution urging state attorneys general to sue EPA over the rule that targets existing power plants. Broadly, the rule calls for a 30 percent reduction in carbon emissions by 2030, but targets for states vary.

States will have to write their own plans on how they are going to reduce their power sector CO2 emissions. If they do not, EPA will write the plan for them.

Del. Rupert "Rupie" Phillips, a Democrat from West Virginia, wrote the resolution, which passed SLC's energy and environment committee. His original measure urged states to not submit plans with EPA, but a compromise was struck to direct attorneys general to take legal action first.

"It's time to draw a line in the sand," Phillips said. "The EPA is pushing us around like they are a bunch of punks. I just want the states to stand together and say 'no.'"

States aren't just worried about the job losses and economic damage from a less-reliable power grid. They also see EPA's plan as a threat to state government sovereignty.

Dan Byers, Senior Director of Policy for the U.S. Chamber's Institute for 21st Century Energy, pointed out the many ways states are resisting:

In fact, led by West Virginia, 15 states have already taken the extraordinary step of suing to stop advancement of EPA's rule before it is even finalized. In addition, Governor Mary Fallin of Oklahoma has announced that Oklahoma will not submit a compliance plan to EPA, Texas Attorney General Ken Paxton said he plans to challenge the EPA rule in court after it is finalized, and a number of states (Arkansas, Kansas, Louisiana, Kentucky, Missouri and others) have passed legislation restricting the form and manner of their state response to EPA.

This Institute for 21st Century report--"In Their Own Words: A Guide to States' Concerns Regarding the Environmental Protection Agency's Proposed Greenhouse Gas Regulations for Existing Power Plants"--collects states' objections to EPA's carbon regulations.

Earlier this year, Sen. Mitch McConnell (R-Ky) warned states to "think twice before submitting a state plan -- which could lock you in to federal enforcement and expose you to lawsuits." (Here are some excerpts from Sen. McConnell's letter to governors.)

Such a threat is very real. In a RealClearEnergy op-ed Byers explained that EPA's plan will make states vulnerable to "sue-and-settle" legal attacks from environmental groups:

[A]nything a state commits to as part of its compliance plan effectively comes under federal control, and enforcement and compliance actions on state energy efficiency or renewable energy programs can be imposed at the whim of an -EPA agreement. Even states acting in good faith could be subject to the sue-and-settle hammer as a result of factors entirely beyond their control. For example, in states that encounter unique circumstances or unexpected challenges that force deviation from their state plan--be it unexpected demand increases, renewable project delays, or something as minor as a modified monitoring and verification procedures--environmentalists will have a shiny new vehicle with which to drive states to Federal court (either directly or indirectly through a suit against EPA).

EPA is expected to finalize its carbon regulations as soon as August. Expect the legal battle to really heat up then.