The Obama White House may think coal isn’t good enough to power our economy, but it must think it’s good enough to add some Christmas cheer.
While the Obama administration gave coal producers and electricity generators an early lump of coal after EPA released proposed carbon regulations, a coal-fired train is the star of the 2014 White House Christmas ornament.2014 White House Christmas Ornament Features a Coal-Fired Train
As the White House Historical Association explains, the ornament is the first to be composed of two pieces [emphasis mine]:
The locomotive is a detailed miniature replica of one of several steam-powered locomotives that pulled the Presidential Special; it is attached to the coal car that held its fuel. The other miniature car is the Superb, the president’s private heavyweight Pullman car. The last car on the Special, the Superb was outfitted with a public address system. President Harding made appearances and delivered speeches at stops across the country from a platform at the back of the car.
President Warren Harding’s transcontinental speaking and sightseeing tour inspired the design.
The ornament reminds us that just as it powered the trains that tied America together into an economic powerhouse, coal still plays a critical role in fueling America’s economy. According to the Energy Information Agency, more electricity is produced by coal (37%) than any other energy source. It’s the backbone of affordable, reliable electricity.Electricity generation by energy source.Source: Energy Information Administration
The United States possesses coal reserves that can last for nearly three centuries. The attacks on this abundant energy source by regulators will mean lost jobs, slower economic growth, higher electricity costs, and a less reliable electrical grid.
President Obama said in 2008 while campaigning, “If somebody wants to build a coal-fired power plant, they can. It’s just that it will bankrupt them.” However, trinkets depicting coal apparently are acceptable.
The ornament is a lovely decoration sure to add character to anyone’s Christmas tree, even of those whose jobs will be lost because of federal regulations pushing coal use out of the economy.
USA Today found that the planned retirements of coal-fired power plants over the next 10 years “will do almost nothing to reduce” carbon emissions. To meet EPA’s carbon dioxide “target by 2030 will probably require many more coal retirements and lock in the nation's energy shift toward natural gas and renewable power.”
Federal regulations are already pushing coal-fired power plants out of the energy mix. According to Energy Information Administration estimates, one rule, the Mercury and Air Toxics Standards (MATS) will force almost one-fifth of them to shut down by 2020. The proposed carbon regulations will make things worse.
Despite the talk from EPA that states will have “enormous flexibility to choose the fuel sources,” these regulations essentially pick energy winners and losers.
This will mean lost jobs—at least 75,000, according to the United Mine Workers of America and would be felt in states like Indiana, local television station WTHI reports [see the video above].
“This is essentially an attempt to eliminate one of our two most-abundant resources for producing electricity,” said Suzanne Jaworowski, spokewoman for Indiana’s Sunrise Coal. Tim Rushenberg of the Indiana Manufacturers Association estimates that the rules could add $600 million annually to the electric bills of the state’s factories.
Along with the fear of lost jobs and higher electricity costs, we should worry about the reliability of the electrical grid. Sen. Lisa Murkowski (R-AK) addressed this in a Senate floor speech, last week:
“It is uncertain if there will be enough time – to say nothing of sufficient capital available for investment – to build new facilities or other forms of generation needed to ensure the continued reliability of the grid,” Murkowski said.
“The Polar Vortex caused 50,000 megawatts of power plant outages,” Murkowski added. “For one key system, 89 percent of the coal capacity that is slated for retirement next year because of an EPA rule was called upon to meet rising demand. Think about that. We had a tough winter and coal facilities were able to step up.”
“The question we should be asking is, what happens when that capacity is gone? Hoping for a mild winter isn’t a viable strategy. We can’t have a-hope-and-a-prayer policy,” she said.
However you cut it, EPA’s proposed carbon regulations will be all pain with little gain.
EPA argues that its proposed carbon regulations on existing power plants will offer $30 billion in climate benefits by 2030 with only $7.3 billion in costs. Sounds like a great deal, right? Not so fast.
A Brookings Institution white paper finds that EPA pumped up that number by including global climate benefits. If the agency took the standard approach and only examined the costs and benefits to those in the United States—who will feel its full brunt —then the climate benefits from the proposed rule would fall to as little as 7% of what EPA estimates, much less than the proposed regulation’s costs.
Authors Ted Gayer, Vice President and Director, Economic Studies at the Brookings Institution and Kip Viscusi, law professor at Vanderbilt University, explain that a basic component to cost-benefit analysis is looking at the appropriate population:
The pertinent populations that are attributed standing in a benefit-cost analysis should correspond to the political jurisdiction that is bearing the cost.
For example, when analyzing a new Wisconsin milk regulation, one should include the regulation’s effects on Wisconsin farmers and milk drinkers and not on those living in Florida.
Likewise, the cost-benefit analysis of EPA’s proposed carbon should be limited to the United States, but that’s not what EPA is doing. Gayer and Viscusi write [emphasis mine]:
The recent governmental analyses of the benefits associated with reduction of [greenhouse gas] emissions represent a rare instance in which U.S. regulatory impact analyses have used a worldwide benefits reference point rather than a U.S. reference point.
The only other time the authors could find an instance of this was in 1980 involving a uranium regulation.
Why is EPA doing this? Because it'll make the proposed rule more politically palatable, write Gayer and Viscusi:
[I]mposing a global perspective on benefits will increase the apparent desirability of the policy but will overstate the actual benefits to the American people.
However, EPA's use of global benefits as the justification for the proposed carbon rule crosses Presidential Executive Orders that state that cost-benefit analyses should be limited to the effects on the American public. For instance, President Clinton’s Executive Order 12866 reads: [emphasis mine]
The American people deserve a regulatory system that works for them, not against them: a regulatory system that protects and improves their health, safety, environment, and well-being and improves the performance of the economy without imposing unacceptable or unreasonable costs on society…
President Obama’s Executive Order 13563 is along those same lines: [emphasis mine]:
Federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people.
In addition, guidance from the Office of Management and Budget (OMB) advises regulators that
Your analysis should focus on benefits and costs that accrue to citizens and residents of the United States. Where you choose to evaluate a regulation that is likely to have effects beyond the borders of the United States, these effects should be reported separately.
The U.S. Chamber and several other trade associations have been arguing this exact point. "Consistent with OMB guidance, the costs of a rule for entities in the United States should be presented in comparison with the benefits occurring in the United States," states a comment to OMB on the administration's social cost of carbon estimates.
Gayer and Viscusi go on to write, “If one were to focus on the domestic benefits rather than the worldwide benefits, the [greenhouse gas] benefit component would sometimes be extremely small.”
How small? The Obama Administration estimates that most of the climate benefits of reducing carbon emissions would be outside the United States. “Only 7 to 23 percent of these benefits would be domestic benefits,” write Gayer and Viscusi. This means that “the domestic benefits amount [of the proposed carbon rule] is only $2.1 billion-$6.9 billion, which is less than the estimated compliance costs for the rule of $7.3 billion.”
EPA should be honest with the American people. Based on its own estimates, the costs of the proposed carbon rule--job losses, higher electricity costs, and a less-reliable electrical grid--outweigh its domestic climate benefits. The proposed rule is bad enough, but the misleading way EPA is justifying it is just as bad.
Keystone XL opponents say they’re fighting the project because they fear the carbon emissions that would be produced by developing Canada’s oil sands, but a new report undercuts that argument by finding that the oil sands development has resulted in only a fractional increase in them.
Bill McKibben, head of 350.org and the main face behind the anti-pipeline campaign declared in 2011 that Canada’s oil sands are “the earth's second-largest pool of carbon, and hence the second-largest potential source of global warming gases after the oil fields of Saudi Arabia.”
However, a report by IHS finds that increased development of Canadian oil sands have not had an impact on U.S. carbon emissions. Canada’s National Post reports:
The report, based in part on a focus group meeting held last October in Washington, D.C., with Alberta’s Department of Energy and major oil sands producers, found that between 2005 and 2012, the carbon intensity of the average crude oil consumed in the U.S. “did not materially change,” decreasing by about 0.6%.
That is despite a 75% increase in U.S. imports of oil sands and other Canadian heavy crudes over the same period — to about 2.1 million barrels a day from 1.2 million barrels.
At the same time, U.S. imports of Mexican and Venezuelan heavy crude fell, while production of U.S. tight oil from North Dakota’s Bakken and the Eagle Ford shale in Texas climbed to 1.8 million barrels a day, up from virtually zero in 2005. That helped displace imports of similar crudes from Africa and elsewhere with relatively higher carbon footprints, the report says. U.S. imports from Nigeria fell 64% over the period, it said.
“A lot has changed since 2005,” said Kevin Birn, a director of IHS Energy and leader of the consultancy’s oil sands dialogue in Calgary.
“We’ve had heavy crudes push out heavy crudes that happen to be within the same GHG intensity range, and the same thing’s happened on the light oil side.”
Since we’re on the topic of the Keystone XL pipeline and greenhouse gas emissions, I’ll remind you that the State Department’s economic analysis of the pipeline found that alternative methods of moving oil sands crude—no serious observer thinks they won’t be developed--would result in higher greenhouse gas emissions than from the Keystone XL pipeline.
Remember these facts the next time pipeline protesters get arrested in the name of reducing carbon emissions.
Last week, the U.S. Chamber’s Institute for 21st Century Energy issued a comprehensive analysis of the costs associated with potential EPA regulations. Note that we used the word potential—it was even in the title—because it was impossible to know exactly what EPA was going to propose. The type of modeling that IHS did for our study takes months, and unfortunately we weren’t privy to the decisions being made behind EPA’s doors in terms of their emissions reduction targets. Therefore, we took the Obama Administration at their word and used their stated emissions reduction targets.
Some have now called into question the accuracy of our study because the Administration’s rule appears to differ—though perhaps not as much as meets the eye—from what was actually proposed. In fact, a Washington Post “fact checker” declared that our study has “false notes”—apparently not because the actual content was wrong, but because it didn’t predict what the Administration would release with complete accuracy. Interestingly, the same claim can be made about the Natural Resources Defense Council’s pre-rule analysis, which made a similar assumption about emissions reductions targets.What Assumptions Did the Chamber Make, and Why?
Our study aimed for an emissions reduction target of 42% by 2030. This assumption wasn’t invented out of thin air, but rather was based on the very specific emissions reductions goals that the Obama Administration has made and repeated.
Let’s go back to 2009 to examine that target. On November 25, 2009, the White House announced that President Obama would attend Copenhagen climate talks. The White House wrote:
“the President is prepared to put on the table a U.S. emissions reduction target in the range of 17% below 2005 levels in 2020 and ultimately in line with final U.S. energy and climate legislation. In light of the President’s goal to reduce emissions 83% by 2050, the expected pathway set forth in this pending legislation would entail a 30% reduction below 2005 levels in 2025 and a 42% reduction below 2005 in 2030.”
This target was reiterated a few weeks later in Copenhagen by Todd Stern, the U.S. chief climate negotiator:
“We have – as I’m sure you’re all aware – articulated a U.S. target within the last couple weeks of 17% below 2005 levels by 2020. And that ramps up – that’s part of an overall legislative package that goes out to 2050. Just to give you an example, by 2025 the reduction would be about 30% below 2005, and 42% by 2030.”
Since that time, this target has appeared in print numerous times and was the basis for failed legislation in Congress. Most recently, Energy Secretary Moniz and EPA Administrator McCarthy held a “Google Hangout” on May 19, in which Secretary Moniz repeated the climate goal of “17% by 2020” and “80% by mid-century”—the exact same pathway referenced by Todd Stern and the White House that includes the 42% reduction by 2030.
So, there was no reason to think that the Administration was going to suddenly abandon their emissions reductions targets.
It is important (and interesting) to note that even with flexible compliance options, our study could not actually achieve a 42% reduction in emissions. We ended up at 40%. The only way to achieve this lower target was by imposing carbon capture and sequestration on new natural gas plants in 2022 via the separate New Source Performance Standard process, which has significant cost. EPA took issue with our analysis, but provided no rebuttal as to how the 42% (or 40%) target could be met without CCS on natural gas, and even the proposed rule leaves the door open to CCS on gas by asking for public comment on whether “the use of CCS should be allowed as a compliance option to help meet the emission performance level required under a CAA section 111(d) state plan” for new natural gas combined cycle plants.What Are EPA’s Actual Targets?
The overall national emissions reduction target is 30% by 2030—a significant departure from the previous commitment. But there are huge caveats to that number.
First, EPA’s method will rely on state by state reductions in emissions. Each state will have a different target. It is not immediately clear what those targets are for each state, but it certainly appears that the reduction targets for many states will be well above 30%, and many appear to exceed the 40% that we modeled. Like many others, we’re working overtime to try to understand the exact numbers, and what they mean for costs.
Second, EPA has also left itself a great deal of wiggle room to come back next year—after the public comment period—and propose new, stricter rules. Administrator McCarthy herself has said she regrets that 30 percent was highlighted as a target and other Administration officials have reportedly said in briefings that the final regulation could have stricter targets. So the 30% reduction in emissions could easily become 40% by the time this rule making process is through.Where Does that Leave the Chamber’s Study?
Our study provides a benchmark for what a 40% reduction in emissions would look like. But because each state has to meet a different standard, and many of those targets will exceed the Administration’s 30% national average target, our numbers could still end up being a close approximation of the true costs of the proposed rule. Our study showed a disproportionate geographic impact to states in the South Atlantic, East North Central, and West South Central census regions. Regardless of the national target, those same states will still have large compliance costs, which will result in increased electricity prices, job losses, and reduced economic productivity. Some states may even experience greater adverse impacts than we identified in our study.
Of course, our study also remains a precise indicator of what will happen if the Administration proposes a stricter national standard around 40% next year—as environmental groups are already pushing them to do.
So the bottom line is that the jury is still out. In either case, our study is still accurate based on our stated assumptions—and it might end up being a more accurate predictor of the final rule and the actual compliance costs than the “fact checkers” realize.