New EPA analysis of Waxman-Markey: Consumer electric bills 7% lower in 2020 thanks to efficiency — plus 22 GW of extra coal retirements and no new dirty plants

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.

electric meter

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:

  1. The EPA somehow thinks nuclear power will be a major, affordable strategy.  It won’t (see “The staggering cost of new nuclear power“).
  2. 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?“).
  3. 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.”
  4. 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.

12 Responses to New EPA analysis of Waxman-Markey: Consumer electric bills 7% lower in 2020 thanks to efficiency — plus 22 GW of extra coal retirements and no new dirty plants

  1. PaulK says:

    State regulated utilities usually have a guaranteed by statute return on investment. California demonstrates that as efficiencies increase, rates go up perforce. Of course, efficiencies have a cost also to either the utility or the consumer. Are these costs figured into the EPA calculation?

  2. charlie says:

    Won’t lower electricity bills eliminate the price signal consumers are supposed to get to conserve energy?

    [JR: No. The relatively small price signals that one could get from climate legislation over the next two decades were never going to be the primary driver of energy efficiency. Energy efficiency is already cost-effective in every state. It is the regulatory barriers, lack of building and appliance codes, and the lack of funding, especially at a state (and utility) level that are the main reason why most states don’t do what the best states do. This bill addresses most of those problems. Energy efficiency makes it easier to achieve the targets, not harder.]

  3. Leif says:

    If “A penny saved is a penny earned” then the savings also represent money that did not have to be earned and thus subject to tax which is another 25% savings to the consumer, or if earned can be put into a savings account or retirement account with differed taxation. Tell me, where else can the public invest that they can receive 5 to 30% on there investment?

  4. ECD Fan says:

    “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. ”

    Really? And who is going to pay the huge debts that will burden the economy due to that expensive “clean” electricity?

    The same (lack of) thinking caused the real estate bubble. Look now where we are.

  5. Rick Covert says:

    If price signals to consumers through Waxman-Markey won’t curtail use of CO2 intensively generated electricity won’t the cost to the electricity generation providers to build new coal fired plants hinder further expansion of coal fired electrical plants?

  6. r simpson says:

    I hope it is true that cost per BTU and per KWH will not go up. Savings will come from tax credits? Decreasing consumption? I can lower consumption now by 7% and save 7%. I also wonder what kind of economists work for the EPA.

    [JR: Rates go up, bills go down. It’s called energy efficiency and I have written about it at length.]

  7. RoySV says:

    Jim Tankersley, LA Times 22June, has a much more grim assessment of continued coal emissions under Waxman-Markey. Could you please comment?,0,6722721.story

    [JR: Have you read the piece? it is based entirely on disinformation from The Breakthrough Institute, which I have thoroughly trashed here. Sad to see Tankersley get suckered by such crap.]

  8. PaulK says:

    “I hope it is true that cost per BTU and per KWH will not go up”

    No one is saying that the per BTU and KWH costs won’t go up. The idea is that the free allowances will soften the increase. It is the monthly bill that is claimed to stay the same because of more efficient use.

  9. RoySV says:

    Thanks for your reply. Really hard to evaluate when claims are made based on alleged modeling of incentive regulations not yet adopted.
    Then there’s this:
    “…the Environmental Protection Agency projects that even if the emissions limits go into effect, the U.S. would use more carbon-dioxide-heavy coal in 2020 than it did in 2005..”

    From your reply, I would assume this is incorrect? If we really don’t reduce coal in the next 15 years that would be a gross failure.


  10. David B. Benson says:

    ECD Fan — New electric generation capacity, no matter what energy source is used, will send rates way up. Existing power plants are paid for, mostly long ago. New ones are much more expensive to build now and the investors in those plants have to be paid off over something like 20–30 years.

    With increased energy efficiency, not so many new power plants will be required.

  11. Leif says:

    I recall reading a few years back that the US wastes the equivalent amount of energy that the Alaska pipe line produces. If so, that is a big hunk of change going down the rat hole with the added burden of paying interest to foreign investors on it to boot.

  12. G says:

    I get the EE argument and buy-in to cap-and-trade in general (I live and breath it, really). But playing the devil’s advocate, what is the use of climate legislation if it doesn’t send a credible price signal to consumers? Ultimately individuals make the choice to drive cars, use lights, and adjust their thermostats — aren’t we just fooling ourselves if our policy choices don’t correctly account for the societal costs of our chosen energy portfolio? Shouldn’t we just be honest and prepare ourselves for $10/gal gasoline instead of shuffling monies from ratepayers to utilities and back to ratepayers in hopes the problems will magically disappear up the flue?