The EPA has posted its detailed analysis of the American Clean Energy and Security Act (H.R. 2454) here. The bottom line is that the total cost to consumers is low, just as CBO found — just as all major independent analyses of even strong action show (see “”Intro to climate economics“). You can read the House Energy and Commerce summary of the EPA analysis here. In this post from Wonk Room, guest blogger, Daniel J. Weiss, Director of Climate Strategy at the Center for American Progress Action Fund, discusses the EPA’s findings. At the end, I discuss a few flaws in the analysis, as well as the implications of Waxman-Markey for coal.
The main argument conservatives and big oil and coal companies use against the American Clean Energy and Security Act (H.R. 2454) is that it would cripple American households with a crushing energy tax. To make that claim, they have distorted cost estimates from the Massachusetts Institute of Technology and conducted their own biased studies. Today, the Environmental Protection Agency obliterated these phony numbers with the release of its economic analysis of H.R. 2454. The EPA estimated the bill would actually lower household electricity bills:
As a result of energy efficiency measures, consumer spending on utility bills would be roughly 7% lower in 2020 as a result of the legislation.
That’s right “” lower bills. In 2007, this would have saved the average residential user $84, or 23 cents per day. EPA’s analysis also found:
The overall impact on the average household, including the benefit of many of the energy efficiency provisions in the legislation, would be 22 to 30 cents per day ($80 to $111 per year).
We don’t have to just wish we were there “” we can have a clean energy economy for the cost of a postcard stamp a day. And the EPA’s analysis does not “take into account the benefits of reducing global warming.”
EPA’s findings are consistent with the independent Congressional Budget Office analysis released on June 19th. CBO determined “that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion””or about $175 per household.” CBO did not evaluate the impact of the energy efficiency measures on consumer spending on utilities.
The bottom line is that independent analyses found that ACES would cut spending on utilities, as well as have minimal overall costs to the average household – somewhere between 22 to 48 cents a day. Hopefully, representatives will pay heed to these government studies and ignore conservatives’ counterfeit estimates when they vote on the American Clean Energy and Security Act this Friday.
The bill would also spur investments in renewable electricity from the wind, sun and other sources. EPA projects:
Roughly 65% of the new generation built by 2025 will be renewable”¦Billions of dollars will be directed to states so that each state can create homegrown clean energy jobs.
EPA also found that the bill would benefit farmers by creating a domestic offset market “worth at least $4 billion annually through 2030.”
JR: The rest of this post is my discussion of the weak points of EPA’s analysis, plus the likely impact on coal.
The biggest flaws in the EPA study are:
- The EPA somehow thinks nuclear power will be a major, affordable strategy. It won’t (see “The staggering cost of new nuclear power“).
- The EPA thinks coal with carbon capture and storage will be a major, affordable strategy by 2015! It won’t (see “Is coal with CCS a core climate solution?“).
- The EPA thinks emitters will start purchasing some one billion international offsets in 2012 and every year thereafter — even though allowance prices in 2012 will be only $13 a ton of CO2-eq in 2015 and $16 in 2020. This is absurd. There is an actual market for international offsets on which to base analysis. Last year, European emitters purchased some 82 million tons such offsets at an average price of $25 a ton! (see here) So what are the chances that the United States is going to come into the market, increase demand severalfold, and prices will drop in half? Zero. And that’s particularly true since the cheapest (and most dubious) international offsets — HFC “reductions” — will be long gone by then. An analyst familiar with EPA’s modeling of international offsets told me “they know this is all nuts.”
- The EPA completely underestimates the vast supply of low-cost domestic clean energy emissions reduction strategies most especially fuel-switching from coal to natural gas. I would note that lowballing the cost and capacity of fuel-switching is a major reason that the EPA and indeed most economic models wildly overestimated the cost of meeting the sulfur dioxide emissions reductions in the cap-and-trade system put in place under the 1990 Clean Air Act amendments.
Fortunately, EPA’s fourth mistake cancels out the first three. In place of most of those nukes, the vast majority of those international offsets, and all of the CCS, the country will make use of energy efficiency, conservation, low-cost renewables, and fuel switching (see “Game changer, Part 2: Why unconventional natural gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet“).
What happens to coal under Waxman-Markey?
The EPA projects (page 27) that W-M will stop pretty much all of the few remaining new dirty coal plants that EIA had been projecting would be built through 2025 (roughly 20 GW), whereas the overwhelming major of new capacity will be renewable energy.
And the EPA projects (p. 28) W-M will lead to 22 GW of extra coal retirements by 2015 beyond what EIA had been projecting.
Note: It is 22 GW of extra coal retirements, not 50 as I had originally written.
In reality, the bill will be much tougher on coal. Using the numbers from the far more credible CBO analysis, and assuming CCS is only a bit player for the next decade, it looks like U.S. coal use would drop by at least 20% by 2020. My own analysis suggests coal use in 2020 would drop by more than 25% compared to 2005 levels — but it is really hard to be more precise than that because the exact number depends most on two very difficult things to project.
To really know how much of a hit coal takes, you’d have to know the price of oil in 2020 and the price (and availability) of natural gas in 2020. Historically, these have been two of the most difficult things to project. Obviously, if peak oil takes the oil price above $200 a barrel in 2020, then we’ll see relatively more reduction in oil use than expected. Similarly, if unconventional natural gas proves as abundant as recent production growth — and recent projections — suggest, then we’ll see relatively more reduction in coal use than expected.