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.
The Wall Street Journal published two tough reactions to EPA’s proposed carbon rules on power plants. [Subscription required.]
First, an editorial declared that the plan to be a “huge indirect tax and wealth redistribution scheme that the EPA is imposing by fiat [that] will profoundly touch every American.”
It notes that EPA claims:
that by some miracle the costs of this will be negligible, or even raise GDP, but it is impossible to raise the price of carbon energy without also raising costs across the economy. The costs will ultimately flow to consumers and businesses.
The editorial also notes that there will be regional winners and losers:
The New England and California cap-and-trade programs will get a boost, while the new rule punishes the regions that rely most on fossil fuels and manufacturing: the South, Ohio River Valley and mid-Atlantic. Think of it as a transfer from Austin to Sacramento.
As for EPA’s claim that the plan gives states flexibility to meet carbon limits, the editorial warns, “The agency recently rejected state plans to reduce regional haze before they are even formally proposed and revoked permits it had previously approved.”
Next, an op-ed by Senators John Barrasso (R-WY) and Wendy Heitkamp (D-ND) looks at the local effects of this proposed rule:
Coal-fired power plants will be especially hard hit, disproportionately hurting coal-producing states like Wyoming, North Dakota, Pennsylvania and Montana.
When excessive Washington red tape closes a power plant or a coal mine in a small community, those jobs aren't the only ones to go. The lost revenue base hurts public schools, police and busing services for seniors who can't drive. Teachers, laborers and doctors move away, looking for a better chance somewhere else. Small businesses don't have enough customers, so they shut down—the town withers away.
Such disruptions for only a token reduction in emissions:
The pain is felt locally, but America's environmental policies must reflect the fact that carbon dioxide is produced globally. The U.S. share of carbon-dioxide emissions has been dropping for more than a decade. Meanwhile, emissions in developing countries have soared. China's have increased by 173% from 1998 to 2011.
These new EPA policies will produce minimal environmental benefits unless other countries also aggressively reduce emissions, to the detriment of their economies. That is unlikely in the near term.
EPA’s proposed carbon regulation will be all economic pain for little environmental gain.
UPDATE: EPA's proposed rules aren't good enough for the European Union, Bloomberg reports:
The European Union said the U.S. must do more to reduce greenhouse gas emissions than the proposal President Barack Obama’s government released today if it’s to keep talks on limiting global warming on track.
The decision announced by the Environmental Protection Agency in Washington calls on existing power plants to reduce fossil fuel pollution by 30 percent from 2005 levels by 2030. It’s the most comprehensive climate-protection plan yet from Obama’s administration.
“All countries including the United States must do even more than what this reduction trajectory indicates,” EU Climate Commissioner Connie Hedegaard said in a statement from her office in Brussels today.
EPA has released its proposed carbon rules on power plants. The proposed rules may say that they “can inform current and ongoing decision making by states and utilities, as well as private sector business and technology investments." but that’s polite spin for “picking energy winners and losers.”
The reaction from business leaders has been strong.
Today’s regulations issued by EPA add immense cost and regulatory burdens on America’s job creators. They will have a profound effect on the economy, on businesses, and on families. The Chamber will be actively participating in EPA’s input process on these regulations, and will be educating our members and affiliates about their impacts
As users of one-third of the energy produced in the United States, manufacturers rely on secure and affordable energy to compete in a tough global economy, and recent gains are largely due to the abundance of energy we now enjoy. Today’s proposal from the EPA could singlehandedly eliminate this competitive advantage by removing reliable and abundant sources of energy from our nation’s energy mix. It is a clear indication that the Obama Administration is fundamentally against an ‘all-of-the-above’ energy strategy, and unfortunately, manufacturers are likely to pay the price for this shortsighted policy.
If these rules are allowed to go into effect, the administration for all intents and purposes is creating America’s next energy crisis. As we predicted, the administration chose political expediency over practical reality as it unveiled energy standards devoid of commonsense and flexibility. These guidelines represent a complete disregard for our country’s most vital fuel sources, like American coal, which provides nearly 40 percent of America’s power, reliably and affordably.
With this new rule, the Environmental Protection Agency is continuing its push to make U.S. electricity less diverse, less reliable and more expensive. The proposed emissions targets cannot realistically be met without forcing substantial closures of existing plants and taking major energy options off the table in the U.S. The resulting impacts on American jobs and the economy could be devastating.
Last winter showed just how critical a diverse energy mix is to keeping up with demand for electricity and how supplies in many regions of the country are already significantly strained. Further restricting our largest energy sources will mean even fewer options for affordable electricity for American businesses.
The Obama Administration had ample opportunity to listen to the concerns of energy users across the country and create a rule that was balanced and supported an “all of the above” approach to energy. Today’s announcement shows that they chose instead to push regulations that go too far, too fast without consideration of the consequences for American companies and consumers.
On these rules making for a less-reliable electricity grid, as Senator Jim Inhofe (R-OK) writes in an USA Today op-ed:
More EPA regulations like the one that will be proposed Monday threaten the reliability and affordability of our power grid, will weaken our economy, and drive more people into the unemployment lines. In a Senate Environment and Public Works Committee hearing on May 14, committee witness, Marvin Fertel, president and chief executive officer of the Nuclear Energy Institute, testified that EPA regulations are "shutting down the backbone of our electricity system."
And for what? People like New York Times columnist Paul Krugman believe the spin that EPA’s massive shake-up of electricity generation will get other nations on board to limit their carbon emissions. “If we start taking serious steps against global warming, the stage will be set for Europe and Japan to follow suit, and for concerted pressure on the rest of the world as well,” he writes.
No one should assume that. For instance, last month, Japan’s utilities reported the “13th straight month of year-on-year gains for coal consumption” in response to that country moving away from nuclear power after the Fukushima accident three years ago. In Germany, electricity production from coal has risen to its highest percentage since 2007.
Then there are the developing countries like China and India who want to reach the same level of wealth as the developed world. Law professor Jonathan Adler writes at the Volokh Conspiracy:
Well over a billion people around the world lack access to electricity, and much of this demand will not be met with carbon-free technologies. Addressing emissions worldwide is essential to atmospheric stabilization, and this requires developing technologies that will enable people around the world to have access to affordable electricity without increasing GHG emissions.
Wonkblog noted that in 2013, China “added far more fossil-fuel [electrical] output capability than it did solar, wind, hydro and nuclear power combined.” The BP Energy Outlook 2035 sees China as the world’s largest consumer of coal for decades to come.
News of EPA’s proposed regulations was met with “muted applause” from international observers. It is wishful thinking to believe that a tiny reduction in global carbon emissions as a result of EPA carbon regulations will get other countries to join the U.S.
Read more at memeorandum.