While other countries renege on their carbon reduction policies, President Obama is moving full force to make commissioned a study that looks at the economic and energy impacts of a hypothetical policy that would meet the President’s stated emission goals.[i] The study indicates that the Environmental Protection Agency’s (EPA’s) plan to reduce carbon dioxide emissions from power plants would result in:Americans pay ‘big time’ for their energy while achieving very little in greenhouse gas reduction benefits. Although President Obama has not released his plan to reduce carbon dioxide emissions from existing power plant sources yet (he will do so Monday), the U.S. Chamber of Commerce
- 224,000 jobs lost on average each year through 2030,
- more than $50 billion in average annual GDP loss through 2030, with a peak GDP loss of almost $104 billion in the year 2025,
- $289 billion in additional cumulative electricity payments by consumers from 2014 through 2030,
- a cumulative reduction of $586 billion in disposable income from 2014 through 2030,
- $480 billion in cumulative compliance costs by electricity providers through 2030, and
- an average undiscounted economic cost of $143 per ton of carbon dioxide reduced, much more than EIA estimated for the failed Waxman Markey proposal several years ago.
In contrast to these enormous economic costs, the benefit of the emission rule would be a reduction (relative to the baseline) in global carbon dioxide emissions of just 1.8 percent during a period when global carbon dioxide emissions are expected to rise by 31 percent, according to the Chamber.
The Chamber’s Report
The U.S. Chamber of Commerce commissioned the research and analytics firm IHS to assess the costs and market impacts of meeting the Obama Administration’s emissions target of 42 percent reduction below 2005 levels in greenhouse gas emissions from new and existing power plants by 2030, as stated in the Administration’s 2010 submission to the UN Framework Convention on Climate Change. The analysis is based on an existing power plant regulatory proposal by the Natural Resources Defense Council (NRDC) because that proposal incorporates many of the features that are expected to be adopted by the EPA. The analysis uses two cases: (1) a Reference Case with no additional federal regulations targeting U.S. power plant carbon dioxide emissions but inclusive of all other EPA regulations, such as the Mercury and Air Toxic Standards and the Cross-State Air Pollution Rule; and (2) a Policy Case with federal standards mandating the reduction in greenhouse gas emissions from both new and existing fossil fuel-fired power plants.
In order to reach the Administration’s aggressive goal, it was necessary to assume that carbon capture and sequestration (CCS) for new natural gas plants will be required beginning in 2022 despite the fact that the technological and financial viability of CCS does not exist today and remains highly uncertain in its availability by 2022. The addition of CCS technology more than doubles power plant construction costs and increases their total production cost by about 60 percent.
Energy efficiency mandates and incentives in the Policy Case are expected to lower electricity demand growth from 2013 through 2030 to 1.2 percent per year, or about 0.2 percent lower than the Reference Case. Coal plant retirements increase in the Policy Case, with an additional 114 gigawatts—about 40 percent of existing capacity—being shut down by 2030 compared with the Reference Case. As expected, the new capacity built to replace the retiring coal plants and to meet electricity demand growth is dominated by natural gas and renewable technologies in the early years of the policy change. With the implementation of tighter NSPS standards beginning in 2022 – which becomes necessary to approach the Administration’s 2030 climate objectives – the new capacity is a combination of combined cycle gas turbines with CCS, renewables, and a modest amount of nuclear capacity built later in the analysis period. Coal’s share of total electricity generation decreases from 40 percent in 2013 to 14 percent in 2030, while natural gas’s share increases from 27 percent to 46 percent.
Annual power sector carbon dioxide emissions decline to about 1,434 million metric tons, an emissions reduction of about 970 million metric tons, or about 40 percent below the 2005 level by 2030, which falls short of the 42 percent emissions reduction goal in the Policy Case. To put this in perspective, the International Energy Agency estimates that between 2011 and 2030, the rest of the world will increase its power sector carbon dioxide emissions by almost 4,700 million metric tons (44 percent). The non-U.S. global emissions increases are more than six times larger than the U.S. reductions achieved in the Policy Case between 2014 and 2030.
While consumers in all regions of the country will be paying more for electricity under the Policy Case, some areas will see larger increases than others, ranging anywhere from $2 billion to over $111 billion. Those regions that incur higher compliance costs will be impacted with greater electricity expenditure increases and experience larger declines in real disposable income per household. For example, consumers in the South will pay much more on average annually ($6.6 billion) and in total ($111 billion) than any other area of the country.
In the Policy Case, GDP is expected to average $51 billion lower annually than in the Reference Case with a peak decline of nearly $104 billion in 2025. On average, from 2014 to 2030, the U.S. economy will have 224,000 fewer jobs, with a peak decline in employment of 442,000 jobs in 2022. Annual real disposable household income will decline an average of more than $200, with a peak loss of $367 in 2025. In fact, the typical household could lose a cumulative $3,400 in real disposable income between 2014 and 2030.
The economic cost to achieve each ton of emissions reduction is an average undiscounted economic cost of $143 per ton of carbon dioxide reduced. That figure is 74 percent higher than the $82 per ton estimated by the Energy Information Administration in its analysis of the Waxman-Markey cap-and-trade bill. The economic cost for each ton of reduced carbon dioxide in this analysis also exceeds the social cost of carbon (SCC) estimates developed by the Administration’s Interagency Working Group on Social Cost of Carbon in 2013. Based on the average SCC from three integrated assessment models at discount rates of 2.5%, 3%, and 5%, the Working Group estimated that by 2030, the SCC will be between $17 and $82 per ton (in 2012 dollars). Applying the same range of discount rates, the average cost in this analysis ranges from $153 to $163 per ton over the forecast period, which is indicative of the tremendous cost of this EPA regulation, which forfeits far more economic growth per ton of avoided emissions than is justified by the Administration’s own “cost of carbon” calculations.
Other Countries are Reneging on Past Commitments
Other countries have tried their hand at greenhouse gas reductions and have found that they reduce their economies, put hardship on their citizens, and do little good on the world scene of global reductions. Australia, Russia, and Japan are a few of the countries that are pulling back from their carbon-reduction commitments, according to the World Bank. Russia, Japan and New Zealand renounced the emission-reduction pact’s second commitment period covering the eight years through 2020. Last month Russia indicated that the UN-endorsed goal of capping rising global temperatures shouldn’t dictate countries’ emission limits in a new climate treaty for 2020.[ii]
Australia’s new government plans to dismantle legislation that levies fees on carbon emissions and replace it with taxpayer funded grants to companies and projects that reduce emissions. Repealing Australia’s carbon tax on July 1, 2014 would[iii]:
- Reduce the cost of living of its citizens – the Australian Treasury estimates that removing the carbon tax in 2014 to 2015 will reduce the average costs of living across all households by about $550 than they would otherwise be in 2014 to 2015.
- Lower the cost of retail electricity by around 9 percent and retail gas prices by around 7 percent than they would otherwise be in 2014 to 2015 with a $25.40 carbon tax.
- Boost Australia’s economic growth, increase jobs and enhance Australia’s international competitiveness by removing an unnecessary tax, which hurts businesses and families.
- Reduce annual ongoing compliance costs for around 370 entities by almost $90 million per annum.
- Remove over 1,000 pages of primary and subordinate legislation.
Japan reneged on its original 25 percent reduction from 2005 levels in 2020 to a 3.8 percent reduction in emissions. This change means that by 2020, Japan’s emissions will have increased by 3.1 percent above 1990 levels, adding another 356 metric tons of carbon dioxide equivalent per year to the atmosphere.[iv]
Monday’s forthcoming announcement by President Obama cannot be good for Americans. It will mean higher electricity prices and lower disposable income for families, an average reduction in the economy’s output of more than $50 billion a year, and job losses that average 224,000 per year. The benefit of this hardship on Americans will be a reduction of 1.8 percent in global carbon dioxide emissions in 2030 relative to the baseline, when emissions are estimated to increase by 31 percent due to the energy use of other countries. It is clear that President Obama wants Americans to suffer, using us as an example for other countries to follow, even though some of those countries have already found the hardships to outweigh the benefits. He does not want Americans to enjoy the benefits of abundant and affordable energy because he intends to use executive orders to enact policies that will make electricity costs “skyrocket” as he himself has professed and by making energy less abundant through policies that limit the use of reliable, efficiency and abundant natural gas, coal, and oil.
The Institute for Energy Research is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets.
[i] Chamber of Commerce, Assessing the Impact of Proposed New Carbon Regulations in the United States, May 2014, http://www.energyxxi.org/epa-regs#
[ii] Bloomberg, CO2 Market Hurt by Australia, Russia Policy, World Bank Says, May 28, 2014, http://www.bloomberg.com/news/2014-05-28/carbon-price-hurt-by-australia-russia-policies-world-bank-says.html
[iii] Department of the Environment, Australian Government, Repealing the Carbon Tax, http://www.environment.gov.au/topics/cleaner-environment/clean-air/repealing-carbon-tax
[iv] Climate Action Tracker, Japan: from frontrunner to laggard, November 15, 2013, http://climateactiontracker.org/publications/briefing/149/Japan-from-frontrunner-to-laggard.html