By Jeff Spross
“The notion that we’re going to have poor people suffering because this measure is pushing up their electric bill is just nonsense. There’s literally nothing to support that.”
That’s Dean Baker, a prominent Washington, D.C. economist and the co-founder of the Center for Economic and Policy Research, reacting to the argument that new federal regulations to cut carbon dioxide emissions from power plants will drive up energy costs for lower-income Americans.
The rule was announced Monday, and on Wednesday 41 GOP Senators wrote a letter to the White House expressing their concern that the costs would “fall most heavily on the elderly, the poor and those on fixed incomes,” by raising electricity rates and energy costs. Conservative interest groups, House Republicans, political commentators, and the Wall Street Journal editorial board have added to the chorus, arguing the carbon rule will make the poor poorer and kill their jobs.
Much of the criticism has been driven by a Chamber of Commerce analysis that projected the regulations would cost American business an average of $28 billion per year in compliance costs through 2030, and would reduce employment by almost 450,000 jobs in 2020. However, that study assumed more aggressive carbon emission reductions than the Environmental Protection Agency (EPA) ultimately chose. It also assumed demand for electricity would grow much faster than is likely (which makes emission reductions more costly), and it assumed more demanding technological standards than the EPA ultimately chose.
The notion that we’re going to have poor people suffering… is just nonsense.
“Odds are we will see some cases where utilities will be incurring somewhat higher costs as a result of shutting down coal plants earlier than what they would’ve done otherwise,” said Baker. “But the impact of that is really likely to be minimal.” Specifically, EPA’s Regulatory Impact Analysis (RIA) estimated total compliance costs for the economy would range around $5.5 billion per year (in 2011 dollars) by 2020, and $7.3 to $8.8 billion in 2030. Baker pointed out those numbers would amount to only $45 per household per year in 2020, and $65 in 2030.
“It’s not altogether trivial but it’s really not that big a deal.”
States Allowed Different Rate Reduction Percentages
Nor is that national number likely to vary all that much from region to region. Some states are far more dependent on coal than others — think Nebraska, Kentucky, or West Virginia — and will have more practical difficulties shifting to less carbon-intensive energy sources. EPA took those concerns into account, and required each state to cut its carbon emission rate by a different percentage. That doesn’t guarantee coal-heavy states an easy time. But it does give them reasonable targets, and the design of the regulations affords states and utilities enormous options in how they reduce emissions, from scheduling plants differently to installing new technology to expanding energy efficiency.
The RIA projected a 5.9 percent to 6.5 percent increase in electricity costs in 2020, and its projections by grid region (Table 3-21) don’t vary widely around that national average. That’s because, as Baker pointed out, how much the regulations will increase electricity prices depends on how costly the alternatives to coal-fired generation are. In many areas of the country, wind is already cheaper than coal and natural gas is far cheaper. While solar remains more expensive than coal, it’s catching up fast.
With all those alternatives available, Baker continued, “it’s just very hard to see a story for how costs would skyrocket or what would cause that.”
EPA Projections Historically Off
This also assumes EPA’s own projections will pan out. History suggests they’ll probably be wrong, and that they’re probably overestimating the negatives. Baker used to work for the Economic Policy Institute (EPI), and in the late 1990s the think tank put together a historical survey of how much regulations were expected to cost before they came out, and then compared that to how big of a dent they actually put in the economy.
“These were regulations that had been implemented in the 70s, 80s and early 90s. And in every single case the actual costs were way below the low-end estimates,” Baker said.
“The reason for that is we have an innovative economy. That’s the reason many of us like a market economy,” he continued. “And [EPA is] making their estimates based on what do we know today, what are the current technologies? But when you create a big incentive to innovate — as you do with these regulations — then you develop new technologies, you push the curve, and you end up with lower costs.”
It’s just very hard to see a story for how costs would skyrocket or what would cause that.
This means EPA’s estimates are overly conservative almost by definition, because they assume no big innovations in energy technology going forward. As Baker noted, regardless of the wisdom of relying on natural gas to cut greenhouse gas emissions — and the strategy is highly questionable — there’s no doubt making such an assumption a decade ago would’ve completely missed the fracking boom, which has since remade energy markets and driven down the cost of electricity.
The same holds true for solar and wind. “They would’ve been very wrong making those assumptions 10 years ago because the costs have literally plummeted,” Baker said. “Most people certainly didn’t anticipate that solar and wind would be comparably priced to coal-produced energy in many parts of the United States.”
Positive Impacts Tallied
Another point is that these numbers only deal with the negative economic impacts of the regulations. Other impacts will be positive, and lower-income Americans will benefit from those as well. As companies adapt to the regulations, new jobs will be created in renewable energy, in energy efficiency, and in technological implementation.
EPA projected national job losses of 72,000 to 77,900 from 2021 to 2025, in sectors like plant construction and mining, as a result of the new carbon rule. (See Tables 6-4 and 6-5.) But it also estimated there would be 76,200 to 112,000 jobs created in 2025 (Table 6-6) thanks to the boost the regulations would give just to the burgeoning energy efficiency sector. Research by EPI has also shown that these sorts of green jobs tend to be more accessible to workers without a college degree, and states with higher levels of green jobs did not suffer as much economic damage from the 2008 recession.