Thursday, August 6, 2015

The Clean Power Plan: Just Another EPA Power Grab?

Earlier this week, Obama passed the Clean Power Plan (CPP), which some are calling his most ambitious climate change plan yet. In simplest terms, here is what the plan entails. The Environmental Protection Agency (EPA) has set carbon emissions goals for each state to reach by 2030. States have to submit their plans by 2018 and start implementing by 2022. If a state does not submit their own plan, the EPA will step in and implement one of their own. One of the nice, touted features about the plan is that it provides the states with flexibility: more efficient technology, coal plant upgrades, increasing the amount of renewable energy in one's portfolio, and more, provided that they meet the EPA's carbon reduction goals by 2030. While the EPA's default is that the states emit a certain amount on a "rate-based" limit (i.e., how much carbon is emitted per megawatt hour), there is also the option to convert that goal into the carbon tonnage equivalent. The EPA estimates that it will lead to climate and health benefits with a social benefit of $55-93 billion by 2030. Flexibility to create net social benefit while addressing a global problem, what's there not to like?

For one, it's a gross violation of constitutional bounds, including the Tax and Spend Clause (Article I, Section 8), as well the Tenth Amendment. Lawrence Tribe, one of the original environmental law professors, agrees on its unconstitutionality. But let's say that constitutional jurisprudence doesn't matter. As the centrist Brookings Institution points out, the CPP has major equity issues since some states are expected to cut back at significantly higher levels than others (see below). Most state environmental agencies, some of which are from blue states, think that the goals are too unfeasible. The unfeasibility is not just on a domestic level, but also the international level. The EPA is doing this under the tenuous assumption that the United States will lead by example and inspire others to cut back on carbon. I'm very skeptical about that claim. China's not going to cut back. Nor are India and Japan. For the United States to justify its actions, it would have to considerably outweigh the carbon increases of other major emitters.

A study from NERA Economic Consulting shows that the CPP could increase energy prices up to 17 percent. Keep in mind that the study was commissioned by organizations that oppose the CPP, which is why I want to draw your attention to the Energy Information Administration May 2015 report, that shows a 4 percent increase in energy prices. Even better, the EIA estimates compliance costs to be $1.3T in lost GDP between 2020 and 2030. The Heritage Foundation puts those costs as high as $2.5T, along with increased electricity costs and unemployment.

This doesn't even get into what I think about the social cost of carbon. I have discussed it before, not to mention that the Reason Foundation released a study on the social cost of emission earlier today. I have an even more fundamental question: why doesn't the EPA provide an estimate of the amount by which the CPP will reduce the global climate? It's a crucial fact upon which one can begin to tout benefits of the CPP. Without it, the estimates are pure guesswork, so why the omission? The EPA has made such estimates before, so it's reasonable to assume the EPA is capable of making estimates. Since the EPA neglected to provide such vital information, the Cato Institute gave it a go. Using MAGICC, a climate modeling system developed in part with EPA support, Cato found that it would only decrease global temperatures 0.02ºC. The International Energy Administration (p. 37) projects that temperatures will increase to 4.2ºC by 2100. The IEA also warns that in order to avoid climate change catastrophe, we would need to reduce the temperature increase to 2ºC, which would be a 2.2ºC difference. Since the CPP would only reduce the global temperature by 0.02ºC, that would only be 0.9 percent of what is required to avert this catastrophe (i.e., 0.02/2.2=0.9%). Even EPA Administration McCarthy agrees that the impact itself will be minimal (see below; entire testimony is here).

Even if you assume that the need to fight climate change is 100 percent justified, even if you use the EPA's social cost of carbon, and even if you use a climate change model used by the EPA itself, what you get is a set of regulations that do next to nothing to stop climate change while imposing all sorts of costs on the American economy and the American people. The costs are clear, the benefits are negligible at best. Meanwhile, I hope the states end up fighting with the EPA and taking it to court in the upcoming years.

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