Over the last couple of years, we’ve taken some deep dives into the U.S. Energy Information Administration’s (EIA) analyses of the economic and energy market impacts of the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP), both its proposed (EIA Analysis Shows EPA’s Carbon Regulations All Economic Pain for No Climate Gain) and final rule (EPA Clean Power Plan: EIA’s Forecast Shows Benefits Fall Well Short of Costs . . .Again).
We thought it would be interesting to take a look at the same questions with regard to the administration’s Paris pledge to cut net U.S. greenhouse gas emissions by 26% to 28% below the 2005 level by 2025. It just so happens that among the nearly 20 scenarios EIA examined in its Annual Energy Outlook 2016 was one—the “Industrial Efficiency High Incentives” scenario—that looks a lot like the outgoing Obama Administration’s policy wish list. While not a perfect match, it includes in one form or another CPP, tax incentives, efficiency, and, especially, an economy-wide price on carbon dioxide that starts in 2018, ramps up to $35 per ton in 2023, and rises 5% a year thereafter. Close enough for government work!
By comparing this side case to EIA’s Reference case without CPP (the “No CPP Reference” case), we can get an idea of the economic and energy impacts of this combination of policies from 2018 to 2040.
The results, summarized below, speak for themselves (note that all dollar figures are in real 2015 dollars):
- GDP: Annual economic losses average $231 billion, totaling $5.3 trillion over the entire period. Cumulative economic costs would still run in the trillions of dollars even if one accepts the very generous, and deservedly controversial, estimates for the social cost of carbon and other monetized health benefits used by the Obama Administration to justify federal climate rules.
- Jobs: Declines in employment are large and consistently lower through 2035. Losses peak in 2023 at 1.4 million fewer non-farm jobs overall and 233,000 fewer in manufacturing.
- Electricity Prices: Electricity prices skyrocket, soaring 18% by 2025 and 24% by 2040.
- Electricity Expenditures: Sharp price increases completely swamp declining sales, leaving consumers with much bigger electricity bills. Consumers across all economic sectors see their cumulative electricity expenditures jump $1.2 trillion from 2018 to 2040.
- Fuel Prices: By 2040, the prices for common fuels will increase anywhere from 8% (E85) to 289% (coal). Gasoline will rise 17%.
- Total Non-Renewable Energy Expenditures: Consumers pay an additional $3.9 trillion for energy from 2018 to 2040.
- Disposable Income: Average annual disposable income is about $148 billion a year lower, affecting poor households and those on fixed incomes the most.
- Value of Shipments: The cumulative decline in shipments amounts to $7.5 trillion ($328 billion per year) in the service sector and $4.3 trillion ($186 billion per year) in the industrial sector. Energy–intensive manufacturing takes the hardest relative hit.
- Coal: Coal use in the power sector is for all intents and purposes eliminated, practically wiping out an entire industry.
For a deeper dive on this issue, please read the Energy Institute’s report, which is available here.