In what will likely disrupt energy production and raise the price of electricity while doing very little to combat ‘climate change,’ the Obama Administration recently moved forward to finalize its regulations of greenhouse gas emissions from power plants. On August 3, EPA issued the final Clean Power Plan rule for new and existing plants.
New power plants are those constructed after January 8, 2014 using natural gas or coal. New natural gas units must use ‘natural gas combined cycle’ technology and meet an emission limit of 1,000 pounds of carbon dioxide (CO2) per megawatt hour. These types of units routinely meet this standard. New coal units, though, must be a ‘supercritical pulverized coal’ (SPC) unit with partial carbon capture and storage, while meeting an emission limit of 1,400lbs CO2/MWh. The use of CCS has been criticized as there are no units actually using it, but, by requiring it, EPA hopes to promote further development of CCS technologies. It is widely thought that the requirement to use SPC with CCS is designed to force the construction of clean-burning natural gas units.
Existing power plants are regulated through interim and final emission performance rates and/or state-specific CO2 goals, with the states determining how to best achieve those performance rates and/or state-specific goals. Generally, EPA established emission performance rates for coal, oil, and natural gas units. It then established statewide goals which may be met by the state in a variety of ways. One such method is emission trading (cap-and-trade), which EPA touts as a proven, market-based approach to address pollution. Congress rejected cap-and-trade early in the Obama Administration.
EPA estimated that the cost of the Clean Power Plan in 2030 is $8.4 billion while providing health and climate benefits between $34 and $54 billion (at a 3% discount rate). The climate benefits are calculated to be $20 billion using the Social Cost of Carbon, which places a dollar amount on the reduction of each ton of CO2. The health benefits (a ‘co-benefit’) are estimated to be between $14 and $34 billion based on reductions in particulate matter, sulfur dioxide, and nitrogen oxide.
The overall impact on the economy will be profound. Most of America’s energy needs are met by carbon-emitting fuels. Restricting the use of one or more of such fuels will have an impact on the economy. Higher energy prices are expected as the cost to produce electricity will rise. Of course, higher energy prices most affect low-income and fixed-income families. Higher energy prices also cause the price of goods and services to increase, which leads to decreases in consumer demand for those goods and services, causing the manufacturers or service providers to reduce employees, reduce production, close, or move overseas. Estimates of the impact on the economy include a loss of 300,000 jobs, a loss of $2.5 billion in gross domestic product, and a loss of income of $7,000 per person.
This economic pain will be wrought for absolutely no environmental or climate benefit. According to the Regulatory Impact Analysis for the rule, the amount of CO2 reductions seems modest, at best. By 2030, the reduction will be around 415 million tons when compared to the base case. Using EPA’s own model, it has been estimated that this will reduce warming by only 0.018 degree C, an amount almost impossible to measure. Meanwhile, China continues to build coal-fired power plants and will increase its CO2 emissions over the next fifteen years.
EPA and President Obama tout this rule as the single most important step America has taken in the fight against global climate change and one in which America leads the world by example. Unfortunately, the ill effects of this rule will be felt by ordinary Americans while doing nothing to actually reduce global temperatures.