Why EPA’s Carbon Regulations Won’t Ruin The Economy, In Three Simple Steps

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"Why EPA’s Carbon Regulations Won’t Ruin The Economy, In Three Simple Steps"

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CREDIT: Shutterstock

On Monday, the Environmental Protection Agency (EPA) announced new regulations to curb carbon dioxide emissions from America’s existing power plants — the most significant step taken by any U.S. president to address climate change.

In combination with the agency’s previous carbon rules for new power plants, Monday’s regulations are the linchpin in the President’s effort to meet the United States’ international commitment to cut its greenhouse gas emissions 17 percent below 2005 levels by 2020.

Critics pounced rapidly, calling the regulations job killers and a drag on the economy. House Speaker John Boehner (R-OH) cited a pre-emptive analysis from the Chamber of Commerce that the rules would leave hundreds of thousands of people out of work each year, and put a drag on economic growth. Not to be outdone, Senate Minority leader Mitch McConnell (R-KY) called the regulations “a dagger in the heart of the American middle class,” and Sen. David Vitter (R-LA) dismissed them as “all pain, no gain.”

Here are three reasons why they’re wrong.

1. The Regulations Are Designed To Be Market-Friendly

Boehner, McConnell and Vitter all fail to mention a crucial caveat: only electricity that’s created by emitting a lot of carbon, such as power derived from coal, will get more expensive. They then leap to claiming the cost of electricity will go up. That requires the unspoken assumption that American firms and individuals won’t be able to move off high-carbon electricity effectively and cheaply. But markets work by pursuing low-cost solutions to problems through decentralized experimentation among businesses. The better and cheaper the solution, the more profits a firm will make, so they have an inherent incentive. And the new regulations are designed to work with those market forces as much as possible.

Each state is given a carbon emission rate to reach (how much carbon can be released per unit of electricity generated), but then the state and its electricity providers can use a wealth of different methods to hit their target. They can build new renewable energy capacity; they can build new natural gas capacity; they can run less carbon-intensive plants more often; they can cut demand for high-carbon electricity through a smorgasbord of efficiency programs; they can install carbon capture and sequestration (CCS) on their coal plants (a technological gamble, admittedly); or they could go with other technological improvements to update and clean up the country’s aging fleet of coal plants. They can even set up a state-level cap-and-trade system or a carbon tax. States can even band together to create regional systems, like the Northeast’s Regional Greenhouse Gas Initiative.

And that’s just the options that immediately come to mind. Even better technologies for scrubbing carbon dioxide from power plant emissions could be on the horizon.

The Natural Resources Defense Council (NRDC) modeled a very similar proposal to the regulatory design EPA ultimately hit on, and found it would actually cut Americans’ electricity bills, thanks largely to improvements in energy efficiency. EPA’s own forecast of its regulations also found a drop in electricity bills.

By contrast, the Chamber of Commerce arrived at its results by assuming a much deeper emissions cut than EPA chose, by assuming demand for electricity would grow much faster in the immediate future than it has since 2000, and by assuming EPA would require CCS technology on natural gas plants. (It didn’t.)

2. Critics Have Overestimated The Costs Of Regulations For Decades

Since its creation in 1970, EPA has been issuing rules for everything from coal furnaces to chlorofluorocarbons to urban air quality. The Economic Policy Institute surveyed this history, and found that over and over, estimates made before the regulations went into effect — often estimates made by the EPA itself — significantly overshot how much compliance would actually cost American industry.

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CREDIT: Economic Policy Institute / Pew Environment Group

In December 2011, EPA finalized new rules to cut emissions of mercury, lead, and other toxins from coal plants. The Chamber of Commerce predicted rolling blackouts, and former Sen. Evan Bayh (D-IN) warned the regulations would “put tens of thousands of jobs in [Indiana] directly at risk.” There were no blackouts, and jobs in Indiana rose from late-2011 to mid-2014, while the unemployment rate dropped.

In 1990, Congress passed a law directing the EPA to install a national cap-and-trade system to cut down on the sulfur dioxide emissions that cause acid rain. Industry, lobbying groups, and political critics all predicted spikes in electricity rates and major hits to economic growth and jobs. Instead, the trajectory of economic growth remained steady, as did employment in manufacturing (usually the sector hardest hit by higher electricity rates), and the national cost of electricity continued to decline through the late 1990s. Even more tellingly, the Center for American Progress found that almost all of the 10 states most dependent on coal power saw their inflation-adjusted electricity rates fall from 1990 to 2009 — despite industry predictions they would jump.

The key thing to remember is there’s no inherent profitability in cutting carbon until forces like EPA’s regulations step in to create that profitability. That means firms and businesses generally haven’t tried that market experimentation yet, and don’t know what they can really achieve. So they overestimate — again and again — how costly implementing regulations will be. Brian McLean, the former director of EPA’s Clean Air Markets Division, told ThinkProgress in an earlier interview that when power companies actually started installing the technology to cut sulfur dioxide emissions after the 1990 law was passed, it regularly outperformed industry predictions — sometimes significantly.

3. There Are Positive Economic Benefits To Regulations, Too

The general hit on regulations is that they create unforeseen ripple effects throughout the economy, damaging jobs and growth. But this assumes all of the unforeseen ripple effects are negative. They aren’t.

For one thing, EPA’s regulations will drive demand away from carbon-heavy electricity and into other emerging sectors like renewable electricity, energy efficiency, and new technological implementation. That will create new jobs in those sectors to offset jobs lost in traditional coal power. NRDC’s analysis showed its proposal would create 274,000 jobs in energy efficiency in 2020 — that alone would reduce the job loss the Chamber projected for 2020 by almost two-thirds. We can also expect job creation in renewable energy, as well as in pollution control technology and installation.

But arguably even more important than growth in those sectors are the health benefits of cutting power plant emissions. The sulfur dioxide, nitrogen oxide, and particulate matter that get released when power plants burn coal drive up rates of asthma attacks, respiratory disease, heart disease, and a host of other ailments. This is a big reason why the 1990 sulfur dioxide laws and lots of other regulations actually helped the economy: the economic benefits of lives saved, hospital visits prevented, and an overall healthier workforce far outweighed the compliance costs to businesses.

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CREDIT: Natural Resources Defense Council

Now, carbon dioxide itself isn’t an immediate threat to human health — most of the economic benefits of avoiding climate change are loaded into the future — but cutting carbon emissions inevitably cuts those other pollutants as well. So when NRDC ran the numbers on its proposal for the carbon rules, found the benefits of the emissions cuts, excluding the benefits of avoiding climate change, would outpace the costs in 2020 by roughly $6 billion to $19 billion.

And when the EPA modeled the actual regulations, it found annual costs to the economy of $7.3 billion to $8.8 billion annually, versus benefits of $55 billion to $93 billion by 2030. The benefits are primarily thanks to the health effects, which include avoiding 2,700 to 6,600 premature deaths and 140,000 to 150,000 asthma attacks in children.

Those benefits will not be far in the future, they will arrive much faster. And because poor and minority Americans are disproportionately harmed by coal pollution, they’ll also enjoy the bulk of those benefits.

In short, the unforeseen positive effects of EPA’s regulations will likely overwhelm the foreseen negative effects.

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