Abby L. Harvey
GHG Monitor
10/24/2014
The Environmental Protection Agency pushed back this week against a new analysis prepared on behalf of a group of industry and energy organizations that projects the cost of the EPA’s proposed carbon emission standards for existing coal-fired power plants could increase energy systems costs by up to almost $500 billion over 15 years. According to a report published late last week by National Economic Research Associates (NERA) Economic Consulting, implementation of the EPA’s proposal could increase energy systems costs by $366 to $479 billion between the years of 2017-2031. The report was prepared for the American Coalition for Clean Coal Electricity, the American Fuel and Petrochemical Manufacturers, the Association of American Railroads, the American Farm Bureau Federation, the Electric Reliability Coordinating Council, the Consumer Energy Alliance and the National Mining Association.
In a written reply to GHG Monitor this week, though, the EPA said that it projects annual cost of compliance at far less than the industry analysis. “According to the agency’s analysis, compliance would cost $7.3 billion to $8.8 billion annually, much less than NERA said. It would increase electricity costs slightly, but new energy efficiency gains would save consumers money by the 2030 compliance deadline,” the EPA said.
Industry Analysis Estimates
The regulations in question sets state specific emissions reduction goals and require the states to develop action plans to meet those goals. The proposed EPA regulation, dubbed the “Clean Power Plan” (CPP), suggests a path to emissions reductions using four “building blocks”—heat rate improvements at the coal units, increased use of natural gas units, increased use of renewable and nuclear energy and demand-side energy efficiency. However, the legality of the “out-side-the-fence” measures in the last three building blocks has been questioned and many states have noted policy-based constraints within their state governments which would make them unable to implement the last two building blocks; renewables/nuclear and demand-side energy efficiency. For this reason, the report examines the economic impact of the regulation in two scenarios, a “state unconstrained” scenario in which all four building blocks could be utilized and a “state constrained” scenario in which only the first two building blocks could be implemented. The report finds that implementation costs are higher in the constrained scenario than the unconstrained, but both scenarios result in far higher costs than the EPA’s estimates.
According to the report, costs for the unconstrained scenario are somewhat offset by demand-side energy efficiency programs, as the EPA has noted in its own analysis, but costs still increase significantly. “Under the State Unconstrained … scenario, energy system costs are dominated by the costs to the utilities and to participants of the additional state energy efficiency programs, which are estimated to cost about $560 billion (in present value) over the period from 2017 through 2031. The reduction in electricity demand over the period 2017 through 2013 results in a net decrease in production costs to meet electricity load that has a present value in 2014 of about $209 billion; this partially offsets the investment costs of the energy efficiency programs,” the report says. “Higher gas prices are part of the higher cost to serve load, but they also affect consumers who purchase natural gas for non-electricity energy services; the higher consumer cost for direct consumption of natural gas adds another $15 billion to the present value of the CPP over the years 2017-2031. The net result is that energy system costs would be greater by about $366 billion in present value terms over the period from 2017 through 2031.”
That price jumps when the last two building blocks are taken out of the mix, according to the report. “There would be no costs for end-use energy efficiency (because this would not be allowed as part of compliance), but the additional costs of providing electricity services would be about $335 billion. The higher natural gas prices would result in an increase in natural gas costs for non-electricity uses of about $144 billion. The net result would be an increase in energy system costs by about $479 billion in present value terms over the period from 2017 through 2031,” according to the report.
EPA Modeling Projects Increased Health and Climate Benefits
According to the EPA’s modeling, the regulations will have “public health and climate benefits worth an estimated $55 billion to $93 billion per year in 2030, far outweighing the costs of $7.3 billion to $8.8 billion,” according to an EPA fact sheet. Further, the EPA’s analysis also finds that by 2030 electricity bills will decrease. “States, cities, businesses and homeowners have been working for years to increase energy efficiency and reduce growth in demand for electricity. EPA projects that the Clean Power Plan will continue – and accelerate – this trend. Nationally, this means that, in 2030 when the plan is fully implemented, electricity bills would be expected to be roughly 8 percent lower than they would be without the actions in state plans. That would save Americans about $8 on an average monthly residential electricity bill, savings they wouldn’t see without the states’ efforts under this rule,” according to an additional EPA fact sheet.
House Science Committee Chair Again Demands New Analysis
The EPA’s cost analysis has been scrutinized by House Science, Space and Technology Committee Chairman Lamar Smith (R-Texas), who renewed demands this week for the EPA to develop a new cost analysis of the regulations. “Systematic biases and major omissions in EPA’s limited evaluation produced a cost-benefit analysis divorced from reality. Consequently, EPA’s Regulatory Impact Assessment fails to assess whether the proposed rule will achieve meaningful benefits and, more importantly, whether the benefits are worth the heavy cost,” Smith wrote in an Oct. 20 letter. Smith’s letter echoes one he sent to the EPA in August, in which he criticized the modeling used by the EPA in its analysis of the regulation.
