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.
U.S. Secretary of Commerce Penny Pritzker is wrapping up her first trade mission to Africa which focused on energy business development. The trade mission, with stops in Nigeria and Ghana, included 20 of the U.S.’s most prominent power generation and solutions companies in an effort to promote U.S. exports to Africa by increasing brand awareness and strategy in West Africa’s energy sector.
Africa is home to seven of the ten fastest growing economies in the world, and yet more than 600 million people in sub-Saharan Africa lack access to electricity. The lack of basic infrastructure and access to reliable power are the greatest development roadblocks to Africa’s rising economies.
According to the International Energy Agency, sub-Saharan Africa needs more than $300 billion in investments to achieve universal electricity access by 2030 – far beyond the capacity of any traditional development program. Without the critical access to energy, African economies are projected to lose 2-3% GDP growth per year.
There is enormous potential for the traveling U.S. businesses to provide their highly-demanded power services and products to African countries like Ghana and Nigeria. It is true that African commerce remains challenged by sub-par roads, ports and rail lines and that the costs of doing business are much higher in Africa. However, American companies are often seen shying away from investment not because of these costs but due to the perceived risks of corruption and insecurity in Africa. While American companies hold on their investments, multinational firms from China, Europe, and India have expanded their operations in Africa.
As we change our role in Africa, from an aid- to trade-based approach, U.S. companies must realize and commit to the vast opportunities for commercial engagement. Not only do they exist, but American companies are given support by the U.S. government. Africa, as described in President Obama’s U.S Strategy towards sub-Saharan Africa, is “the world’s next major economic success story”, and Secretary’s Prtizker’s trip with private power companies represents the administration’s effort to promote trade and investment in Africa.
In addition, President Obama’s Power Africa initiative seeks to boost investment in Africa’s energy sector by partnering U.S. agencies and private companies to double access to power in sub-Saharan Africa. The recent passage of the Electrify Africa Act by the House and its support by the U.S. business community is a clear message that American companies are committed to supporting affordable, reliable electrify in Africa.
The promotion of U.S.’s power companies will not only increase U.S. exports and American jobs, but will create long-term relationships between the U.S. business community and African nations. These sustainable partnerships can be the bedrock for Africa’s next wave of growth helping African economies develop and manage resources, and generate and distribute power reliably throughout region.
As the U.S. companies travel through Nigeria and Ghana, the opportunity presents itself to cultivate not just new power-generation partnerships, but partnerships with rapidly growing African economies. Universal access to electricity will not be accomplished overnight, but American companies must partner in the long-term growth of Africa’s emerging markets to share the benefits of increase trade and investment.
EPA’s proposed rule to regulate greenhouse gas emissions for new power plants centers around mandating carbon capture and sequestration (CCS) technology for new power plants.
Critics have pointed out that the technology used to keep carbon dioxide from floating into the atmosphere isn’t ready. For example, Charles McConnell, former assistant secretary of energy in the Obama Administration, told the House Science Committee in 2013 [emphasis mine]:
[C]ommercial [CSS] technology currently is not available to meet EPA’s proposed rule. The cost of current CO2 capture technology is much too high to be commercially viable…. [I]t is disingenuous to state that the technology is “ready.”
Who knew that a similar conclusion would come out of EPA itself? As Brian Potts points out in a Wall Street Journal op-ed, “things got weird” when an EPA regional office and a panel of administrative judges went rogue and undercut the CCS mantra coming out of EPA’s Washington, D.C. headquarters [emphasis mine]:
Shortly after the proposal was released in September, EPA administrator Gina McCarthy defended carbon capture and storage in a highly publicized interview on PBS, describing it as a "technology that we believe is available today." Then, on Nov. 25, the EPA regional office in Texas did an about-face when it decided that Exxon Mobil would not have to install the technology in its planned chemical plant (such plants emit carbon dioxide) in Harris County, because it would be prohibitively expensive.
Enter the Sierra Club, which challenged the EPA's Exxon Mobil decision on Dec. 26. Last week, three administrative law judges on the agency's Environmental Appeals Board upheld the Texas office's decision not to require CCS. Why? Because the EPA regional office found, and the judges agreed, that the "addition of CCS would increase the total capital project costs by more than 25%."
Talk about inconsistency: In its coal-plant proposal, the EPA admitted that CCS would increase the capital cost of every new coal plant built in this country by about 35%. Even with this staggering price tag, the agency still found the technology economically viable (and since then, the agency has given no indication that its position has changed). Meanwhile, an EPA regional office and its administrative judges decide that a 25% capital cost increase is prohibitively expensive.
If the words of DOE and EPA aren’t enough, take those of the White House. To great fanfare, two weeks ago the Administration released the National Climate Assessment, which White House special advisor John Podesta described as "the most authoritative and comprehensive source of scientific information ever produced" that is "about presenting actionable science" for policy makers. Buried on page 271 of that report is a stark admission that CCS is nowhere near ready:
CCS facilities for electric power plants are currently operating at pilot scale, and a commercial scale demonstration project is under construction. Although the potential opportunities are large, many uncertainties remain, including cost, demonstration at scale, environmental impacts, and what constitutes a safe, long-term geologic repository for sequestering carbon dioxide.
A few pages later, the NCA says:
It is difficult to forecast success in this regard for technologies such as CCS that are still in early phases of development.
Maybe before the administration goes ahead and drives new coal-fired power plants into extinction, it should figure out internally whether its proposed CCS mandate is too expensive. If they're honest with what energy experts, like those at the International Energy Agency have concluded, then they’ll admit that CCS is decades away from being commercially viable.
Thanks to Obama administration policies, it will likely cost more to keep the lights on. The Associated Press reports that partly because of increased regulations that are forcing coal-fired power plants to close:
the Energy Department predicts retail power prices will rise 4 percent on average this year, the biggest increase since 2008. By 2020, prices are expected to climb an additional 13 percent, a forecast that does not include the costs of coming environmental rules.
With EPA about to unleash a costly set of greenhouse gas regulations for existing power plants, don’t expect things to improve. Dan Byers, senior director for policy for the U.S. Chamber of Commerce’s Institute for 21st Century Energy, recently told a Wyoming audience, "We anticipate it to be unprecedented in complexity and cost."
These impending regulations follow EPA’s costly greenhouse gas emissions rules for new power plants. A Department of Energy official told the House of Representatives subcommittee earlier this year that EPA-mandated carbon capture and sequestrations (CCS) technology for new coal-fired power plants could increase wholesale electricity prices by 70% to 80%.
It appears President Obama is keeping this campaign pledge.
Since electricity is integral to our economy, these regulatory attacks on coal, a reliable energy source, will push business costs up. The AP story points to Indiana’s Rochester Metal Products that uses massive amounts of electricity to melt scrap iron:
“As Indiana’s price of electricity becomes less and less competitive, so do we,” says Doug Smith, the company’s maintenance and engineering manager.
Higher electricity costs will also hit everyone who has a smartphone in their pocket. Having instant access to all photos, videos, and music in the cloud requires data centers running 24/7. Like factories, these too are big electricity users. According to Dr. Jonathan Koomey, they accounted for 2% of all electricity used in the United States in 2010, and their electricity use has increased by 36% from 2005 to 2010. [H/t Robert Bryce]
As Mark Mills writes, our digital economy needs reliable, affordable electricity to function:
The principle business of the tech community is anchored in bits. But all bits are electrons (or their quantum cousins, photons) and thus the Internet's monthly exabytes of data traffic consumes vast quantities of electricity. And coal remains the principle source of electricity for the U.S. and the world.
Companies such as Amazon, eBay, Facebook, Google, HP, IBM, Microsoft, Oracle, Rackspace, Salesforce, Twitter, and Yahoo, consume huge amounts of electricity from the grid, where over 85% of electricity comes from coal, natural gas, and uranium. The inescapable fact is that hydrocarbons utterly dominate the information-communications-technology (ICT) energy supply chain where coal is, on average, the biggest player supplying 40% of domestic electricity.
Americans, even those worried about greenhouse gas emissions, expect our phones, tablets, and computers to be able to do more, access more data, and do it faster. All this requires moving more bits, which means more electricity will need to be produced. Allowing EPA to effectively reject coal as a fuel source will stifle innovation, economic growth, and job creation.
In the overall energy mix, renewables (solar, wind, hydro) have their place, but fossil fuels like coal and natural gas, along with nuclear, are the most-reliable sources for baseload electricity generation. Reliable, affordable energy has powered the American economy for decades, and it’s what we’ll need for continued economic and technological progress.
We know that the shale energy boom has been good for job creation and the economy. Now, a new study finds that shale energy development is a net plus for local governments.
Richard Newell and Daniel Raimi of Duke University’s Energy Initiative looked at the costs and benefits of shale energy development on local governments in eight states. Here’s a summary of their findings:
Our research indicates that the net impact of recent oil and gas development has generally been positive for local public finances. While costs arising from new service demands have been large in many regions, increased revenues from a variety of sources have generally outweighed them or at least kept pace, allowing local governments to maintain and in some cases expand or improve the services they provide.
Local governments have seen revenue boosts from local sales and property taxes, state-distributed severance taxes, and direct payments from energy companies. New costs for local governments has come from increased road maintenance, mostly due to the trucks moving equipment and supplies to and from drilling pads, and increased local government staffing costs.
Here is what the authors found for particular states:Arkansas:
In north-central Arkansas, where natural gas production has grown dramatically due to development of the Fayetteville shale, county governments have generally experienced substantial net financial benefits. The leading revenue source has been from property taxes, as newly valuable mineral properties came onto the tax rolls in the five counties we examined. These counties also experienced new costs associated with road maintenance and repair, but these costs were substantially limited by agreements made between county and various natural gas companies, who helped repair many of the roads that were damaged during their operations.Colorado:
In two regions of Colorado, the Denver-Julesberg and Piceance basins, county governments generally experienced large net fiscal benefits, with one exception. New revenues were led by property taxes, and also included severance taxes allocated from the state, as well as increased sales tax revenues for some counties. Some counties also entered into in-kind agreements with oil and gas operators, which limited costs associated with road repair. Despite these agreements, road repair remained the most prominent issue, along with substantial staff costs, primarily from the addition of new staff and rising compensation to retain existing staff.Texas:
Texas counties and municipalities have experienced a range of new revenues and costs, and the net financial effects of recent oil and gas development have ranged from roughly neutral to a large net positive. For counties with new oil and gas production, property tax revenues have grown significantly. For municipalities, sales taxes have been the leading new revenue source, and some have seen large new revenues from leasing municipal land for oil and gas production.
Local governments have also experienced a range of new costs. For most counties, road repair has been the leading cost, and in some cases they have roughly equaled the level of new revenue from property taxes.Pennsylvania:
The local governments we examined in the northeast and southwest regions of Pennsylvania have experienced a range of net positive financial effects as a result of Marcellus shale development.
New costs for these local governments have been limited, and are primarily related to staff. In several counties we visited, new staff were added to manage increased service demands related to law enforcement, emergency services, and to a lesser extent social services such as assistance with affordable housing. For townships, which maintain the bulk of Pennsylvania’s rural road network, costs were more limited and typically included the addition of a small number of employees to the road maintenance staff. Road repair costs have generally been small for townships, due to agreements with natural gas companies to repair township roads damaged by industry-related truck traffic.
The authors found that the biggest challenge has been in North Dakota. The authors write that while local governments have “seen their budgets swell by as much as 10-fold since 2005,” they have struggled to keep up with increased demand for services, especially road maintenance.” It’s a challenge facing one of the hottest job markets in America.
Overall, the shale energy boom is benefiting local governments and will do so in the future. An IHS study produced for the U.S. Chamber’s Institute for 21st Century Energy estimates that shale energy development will contribute over $1.3 trillion in state and local revenues by 2035.
Besides creating jobs, and generating economic growth, shale energy is benefiting state and local governments.