​E-Testimony Against the EPA's War on Power Part 1

Part 1: The Economic Impact of the Clean Power Plan

By: Patrick Hedger, Policy Director-American Encore

This week the Environmental Protection Agency (EPA) held a series of hearings across the country in regards to the agency’s recently proposed regulation targeting national carbon emissions. However, reports are surfacing that many prominent voices in opposition to the proposed standards were unable to secure speaking slots at what were supposed to be public hearings. Whether or not this is simply an administrative error or another deliberate attempt by the Obama administration to choke dissenters with red tape, the case against the EPA’s proposed rule must be made and heard by the American people.

Background: The EPA’s proposed regulation, called the "Clean Power Plan" (CPP), is a set of percentage targets by which carbon emissions from power plants must be reduced which are assigned to each state. The combined national carbon emission reduction target under the CPP is 30 percent by 2030 based on the 2005 baseline of carbon emissions. Under this rule, states must develop and submit to the EPA plans to achieve the goal assigned to them by EPA bureaucrats in Washington. Failure to submit an adequate plan by a state would result in the EPA crafting a plan of its own design for the given state.

Overview: The CPP, as proposed, raises a number of serious concerns divided into two distinct categories. The first of these, naturally, is the slate of the potential economic impacts resulting from implementation of the proposed standards. Studies suggest that the CPP could severely damage the nation’s fragile economic recovery and undermine the reliability of the nation’s power supply all while failing to have any sort of significant impact on global carbon emissions. The other major category of concern is more philosophical. The mere proposition of the CPP by EPA raises alarming questions regarding the separation of powers under the Constitution and the understanding of the role of government that exists within the ranks of Washington’s increasingly powerful bureaucracies. This three-part series will begin by looking at the economic outcomes of the CPP. Part two will look at the potential for CPP complaince outcomes to damage energy security. Part three will then show how the plan is all cost with no benefit as it will fail to make any sort of significant impact on global carbon emissions. Finally, part four will look at the CPP from a purely philosophical standpoint and explain why it signals a breach of the Obama administration's constitutionally delegated role in governing.

The Economics of the CPP: Following the financial crisis and resulting “Great Recession” of 2007-2008, the economic recovery has been tepid, at best. Gross Domestic Product (GDP) growth rates, while largely positive, have been unimpressive. While the GDP did grow by 4 percent in the second quarter of 2014, net growth for the year is still below 2 percent because of a substantial 2.1 percent contraction in the first quarter. Consistently high growth rates have almost entirely escaped the country, so far, following the crisis:

The labor market remains an even more precarious situation as unemployment measures continue to mislead. Indeed the official unemployment rate has fallen, however this is largely due to the fact that millions of Americans have simply stopped looking for work and have exited the labor force. The labor force participation rate is at a 36 year low. Had it remained at pre-recession levels, unemployment would still be well over 10 percent.

In short, there is still significant progress to be made towards a true economic recovery. Yet the CPP stands poised to erect major hurdles to economic growth and job creation. Last month the US Chamber of Commerce, in anticipation of the EPA releasing some form of carbon standards this year, published a study that evaluated the impact of a hypothetical power plant carbon standard – hypothetical given that the EPA had yet to release the specifics of its coming plan by the time the study had been published. The study, conducted by IHS, evaluated the impact of a rule that required a 42 percent reduction in emissions by 2030. This obviously is a more stringent standard than the announced 30 percent standard of the CPP, however the study still serves as a useful guide to what can be expected if the CPP is finalized.

The report found that a power plant carbon emission standard like the proposed CPP would usher in a massive switch away from coal-fired power plants across the country. This would be an exceedingly expensive outcome for Americans given the important role electricity generated from coal plays in nation’s energy portfolio. Coal is currently the single largest producer of electricity in the America, accounting for over 40 percent of all electricity generated so far this year. Coal comprises such a large share of total electricity generation because of its affordability and reliability. Coal is an extremely abundant resource. Estimates are that American coal reserves could last not for decades, but centuries. This helps contribute to coal being one of the most inexpensive forms of electricity generation in terms of cost per unit of energy produced. Coal facilities are also more reliable because they can more easily adapt to changing demand and are independent of all but the most extreme weather conditions, unlike resources such as wind and solar (reflected in their poor capacity factor).

Yet the CPP could drive a stake through the heart of the industry that tens-of-millions of Americans depend on to keep their lights on and businesses running at a reasonable price. The Chamber of Commerce/IHS report shows that their modeled regulation would take coal from 40 percent of total electricity generation down to just 14 percent by 2030 through plant retirements. To account for a regulation that could eliminate roughly a quarter of the electricity supply, the nation’s electric utility companies would have to construct new natural gas and renewable energy facilities and infrastructure while state and local governments would be forced to implement policies to suppress electricity demand. All this means is less money in the pockets of Americans as the utility companies pass compliance costs to consumers and governments do the same to taxpayers.

The Chamber/IHS study estimates total compliance costs for their modeled regulation to approach nearly half-a-trillion dollars over the 16-year implementation period:

Considering that the majority of these costs would go towards producing new facilities to replace existing electricity generation, much of the investment would be unproductive which means that it would not contribute to economic growth. Utility companies would undoubtedly pass on the cost of compliance to their customers, reducing net incomes for families and diminishing investable assests for businesses. As a result the study estimates that such a regulation could lower GDP growth by an average of $51 billion each year. Lost economic growth directly contributes to a weaker labor market as individuals and families consume less and businesses freeze hiring and/or begin layoffs in response. This case is no exception. The study estimates that decreased output from their modeled carbon regulation would result in an average of 224,000 fewer jobs each year through 2030 versus a scenario without the regulation:

What the Chamber/IHS study clearly demonstrates is that implementation of the CPP would not be cheap by any stretch of the imagination. Americans would foot the bill for a radical overhaul of the nation's electricity supply through higher power bills, higher taxes, and greatly diminished job opportunity. These economic costs alone should give Americans enough pause when considering the efficiacy of the EPA's latest proposal. Yet what is more troubling is that the sweeping changes to the electricity supply to be facilitated by the CPP could actually jeopardize the reliability and security of America's electricity system itself all while having virtually no long-term impact on global carbon emissions. To be brief, this means the CPP would be all cost for no gain. These points shall be addressed in Part II of this series which is soon to come.