A white paper published by the free market Manhattan Institute concludes that the Environmental Protection Agency (EPA) Clean Power Plan will trigger more costs and yield less benefits than the federal government has predicted.
EPA proposed the Clean Power Plan in August 2015. The regulatory package calls upon states to draft plans to cut power sector carbon dioxide (CO2) emissions 32% by 2030.
Legality of the rule has been challenged by many states and industry groups and the U.S. Supreme Court has stayed its implementation until after the measure is litigated. Oral arguments are scheduled in September before the full U.S. Court of Appeals for the D.C. Circuit.
The analysis was chiefly authored by Jonathan Lesser, president of Continental Economics. It was published June 16.
Lesser asserts in the report that EPA’s cost-benefit analysis significantly overestimated the direct benefits of CO2 reductions and co-benefits of accompanying reductions in air-pollutant emissions; its analysis also significantly underestimated the specific costs of meeting future electricity demand.
Estimates of future CO2 emissions under the planned rule, along with changes in those emissions, depend on numerous assumptions, especially future economic growth and the “carbon intensity” of the economy, Lesser said. Carbon intensity is the average amount of CO2 emitted for each dollar of world economic output.
“Because of the difficulties in forecasting the rate of technological change and future economic growth, long-term forecasts of CO2 emissions are highly uncertain— and that uncertainty increases over time,” according to some of the key findings in the report.
The EPA’s estimates of co-benefits from future air-pollution reductions also suffer from significant uncertainty and modeling errors. The reasons for this include: unrealistic assumptions about increases in the rate of technological improvement for coal-fired generating plants under the Clean Power Plan,
Lesser also suggests that the government’s calculation of the “social cost of carbon” is very unreliable.
The EPA rule calls for reducing emissions of carbon dioxide from domestic electric generating plants by 870 million tons below 2005 levels by 2030, when the EPA assumes that the CPP will be fully implemented.
In that same year, the EPA estimates that the annual benefits from reducing CO2 emissions will have increased to $20bn and that the associated co-benefits from reducing emissions of air pollutants will provide an additional $14bn to $34bn in benefits. The dollar estimates are based on 2011 dollars.
The compliance costs, principally the higher costs of meeting future electric demand, were estimated by the EPA to be less than $9bn per year in 2030.
Lesser has more than 30 years of experience working for regulated utilities, for government, and as a consultant. He has addressed economic and regulatory issues affecting the energy industry in the United States, Canada, and Latin America.