The United States Chamber of Commerce is projecting that new federal regulations to cut carbon dioxide pollution would raise electricity prices, kill jobs, and slow the economy.
The Environmental Protection Agency (EPA) recently unveiled rules to cut greenhouse gas emissions from the country’s newly built power plants, and next week it will put forward another set of rules to cover the already-existing plant fleet as well. So the Chamber’s analysis is the first fusillade in what looks to be an ongoing battle between lawmakers, industry, activists, agencies, and lobbying groups over the regulations.
Specifically, their study determined that it would cost American industry $28.1 billion annually to comply with EPA’s new regulations, that as many as 224,000 jobs would be lost between now and 2030, that the economy would average $50.2 billion lower a year, that Americans would cumulatively pay $289 billion more for electricity over that period, and that they’d lose $586 billion in disposable income.
Analyzing Rules That Don’t Exist
A few points should be made, beginning with the fact that this is all speculative. No one outside of EPA knows what the rules for existing plants will be. But some time back, the Natural Resources Defense Council (NRDC) put out a very thorough and well-respected proposal for how those regulations could be structured. What the Chamber’s modeling did was take the structure of that proposal, and then assume it would be used to cut carbon emissions 42 percent below 2005 levels by 2030.
In short, the Chamber’s analysis is of what the regulations and the target might be.
A Long History Of Overestimating Costs
But assuming the Chamber proves prescient on those two points, should we be worried? Probably not. First off, as Paul Krugman noted, a $50.2 billion reduction per year is only 0.2 percent of the economy. And that loss of 224,000 jobs is out of a country of 140 million workers — America is adding more than 224,000 new jobs every two or three months right now.
Beyond that, there’s a history here. EPA has been issuing regulations on everything from coal furnaces to urban air quality for four decades. Studies sponsored by the fossil fuel industry have regularly predicted major economic hits as a result, and those hits regularly fail to materialize. In fact, when EPA moved to cut sulfur dioxide emissions from coal-fired power plants in 1990, the Edison Electric Institute predicted electricity rate hikes for the 10 most coal-dependent states. The Center for American Progress found that by 2009 their projection had overshot by 24 percent, and for several of those states the 2009 costs were lower than in 1990.
The way markets usually work is that the profit motive drives industries to find the best savings they can in their business models. But there’s no profit in cutting pollution, so there’s no incentive there to try. As a result, when regulations take effect to force them to cut pollution, industry tends to drastically underestimate the reductions they can get in a cost-effective manner.
Brian McLean, a former director of the EPA’s Acid Rain Division (it later became the Clean Air Markets Division), told ThinkProgress that power plants in 1990 predicted they could cut 90 to 92 percent of their sulfur dioxide emissions with scrubbers. They wound up cutting 98 percent. And after guessing they could cut five to ten percent of their nitrogen oxide emissions with better burners, they ended up cutting 20 to 30 percent.
The proposal NRDC put together for how to design EPA’s regulations actually tries to take advantage of this economic experimentation, by giving states and power plant companies maximum flexibility in how they go about reducing their carbon emissions. This simple approach is one the Chamber should appreciate: they’ve offered support before for a carbon tax, on the grounds that it’s the ultimate in simple, market-friendly policy for reducing carbon emissions.
But cap-and-trade systems serve the same market function — it’s just that instead of taxing carbon, they turn emissions into a limited and trade-able commodity. And the Chamber played a big role in the efforts that defeated the 2009 cap-and-trade bill Obama and the Democrats tried to pass through Congress.
Complexity Cuts Both Ways
Another thing the Chamber’s analysis misses is something critics of regulations often point out in other contexts: the economic ripple effects of regulations are hard to predict. But while critics focus on the negative possibilities, those ripple effects can just as easily be positive. For example, the need to comply with regulations creates new jobs, because people must be hired to install and maintain new technology, to monitor emissions, to handle paperwork, as well as to improve infrastructure and efficiency systems.
“The Chamber fails to account for jobs that would be created building wind turbines, solar panels, and other sources of renewable power,” said David Hawkins, NRDC’s director of climate programs. The Chamber also left out “the jobs to be created making our homes and businesses more efficient; and the jobs of cleaning up our dirty power plants.”
Even more importantly, pollutants from coal like sulfur dioxide and nitrous oxide damage human health. Cutting carbon dioxide emissions inevitably cuts those emissions as well. Healthy workers are more productive workers, so the boost to the economy various studies have found from pollution cuts tends to be quite large — regularly outweighing the costs of complying with the regulations. The Chamber’s analysis makes no mention of any of this.
It only counts up the negative side of the ledger.