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Coal Lobby Funded Study Shows Carbon Pollution Standards are Cost Effective

Dan Lashof

Posted March 26, 2014 in Solving Global Warming

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Try as they might, the coal lobby just can’t come up with any support for their claim that ending unlimited dumping of power plant carbon pollution into our atmosphere will spell the death of Western civilization and the end to freedom as we know it. In fact, their latest attempt proves the opposite: Even using biased assumptions to inflate costs, the study they commissioned shows that the carbon pollution standards NRDC has proposed can be met with minimal economic impacts and costs that are far outweighed by the benefits.

That didn’t stop Mike Duncan, president of the so-called American Coalition for Clean Coal Electricity (ACCCE) from repeating his talking points and asserting that they have been confirmed by a “new” analysis from the National Economic Research Associates (NERA): “NERA’s new analysis confirms that groups like NRDC continue to ignore reality, encouraging policies that will force America down a troubling path of economic and energy insecurity and wreak havoc on the broader economy,” he said in a press release issued Monday.

I’m all for a reality check, but you won’t find it in ACCCE’s rhetoric or the NERA study. ACCCE has actually been touting the results of the NERA study since November, and I have already debunked it based on the scant information available at the time. The only thing new is that ACCCE finally released more details of the NERA study.

NERA’s bottom line is provided on slide 5 of their presentation, which presents its estimate of the overall economic impact of implementing NRDC’s proposal as between $13 billion and $17 billion per year between 2018 and 2033 on an annualized basis. This can be compared to zero to $14.6 billion on an annualized basis in 2020 according to NRDC’s updated analysis released last week.

ACCCE spins this as economic “havoc,” but even NERA has enough shame to just call these costs “large.” Of course $17 billion dollars is a large number, but it is less than 4 percent of the average baseline total national electricity bill over the time horizon analyzed by NERA, and pales in comparison to the size of the U.S. economy ($17,000 billion).

More important, the benefits of implementing NRDC’s pollution reduction plan are higher than the costs, even when using NERA’s inflated cost estimates.  

Ignoring Benefits

ACCCE and NERA, of course, completely ignore the benefits of reducing pollution, but it is possible to estimate these benefits from the information provided in the NERA presentation.

NERA presents two scenarios in the latest release: A “Maximum Flexibility” case and a “Limited Flexibility” case.

The Maximum Flexibility case assumes national trading of emission credits and the ability to use energy efficiency and renewable generation to help comply with the standards. A conservative estimate of the health and environmental benefits of pollution reductions in the maximum flexibility case is $230 billion cumulatively between 2018 and 2033, double NERA’s estimate of the compliance costs.

The Limited Flexibility scenario assumes that emission credits can only be traded within states and that zero-emitting resources can’t be used for compliance. These assumptions conflict with a basic premise of the NRDC proposal: symmetry between the stringency of the standard and the flexibility in compliance options. Nonetheless, we find that the benefits in this case would be at least $510 billion, more than three times NERA’s estimate of the compliance costs.

NRDC estimated these benefits from the cumulative reductions in CO2 emissions from the Baseline between 2018 and 2033 (3,923 million metric tons in the Maximum Flexibility case and 7,744 million metric tons in the Limited Flexibility case) multiplied by the Administration’s conservative estimate of the value to society of reducing CO2 emissions in 2010.  We added to that an estimate of the benefits from reducing other dangerous air pollutants like SO2 and NOx based on scaling previous estimates according to total coal generation.

Inflating Costs

NERA’s results would be even more positive if they hadn’t made a series of assumptions that inflate their cost estimates. Here are some highlights:

  • NERA’s energy efficiency cost assumptions rely upon a single study that exaggerates costs, uses faulty analysis and worse-case assumptions, ignores important research showing opposite results, and distorts the studies it refers to in order to derive its results and conclusions. Moreover, some of the cited studies themselves commit some of the same errors. A full critique of the sole-source article NERA used (Hunt Allcott and Michael Greenstone, 2012) can be found here.
  • In contrast to the paper relied on by NERA, a new comprehensive review of data from energy efficiency programs by Lawrence Berkeley National Laboratory (comprising 4000 program-years of experience) finds that the average program cost of saved electricity is 2.1 cents per kilowatt-hour, 20 percent less than the middle of the range used in NRDC’s analysis.
  • NERA’s assumptions generate economic loss projections for which there is no supporting empirical evidence over the last forty-plus years of clean air protection standards. Industry has repeatedly projected dire economic consequences from pollution standards that have never materialized. The reality is that there is no predictable relationship between electricity prices and cleaner air (this is also true for other goods and public health protections). Indeed, when some of our strongest clean air protections were implemented over the 1990s, electricity prices actually went down. Other factors dominate what determines electricity prices. It is not surprising, then, that the economy is also many times larger now despite huge improvements in the quality of the air we breathe.
  • NERA claims that its method for projecting the impact of carbon pollution standards on jobs is superior to NRDC’s because it uses what economists call a general equilibrium model—which starts with the assumption that the economy employs all available workers and other resources in the most cost-effective way. In the real world, however, the economy is far from equilibrium. Just consider the 10 million Americans who are unemployed and the more than $1 trillion dollars in cash that corporations are hoarding. Carbon pollution standards will stimulate investments of $50 billion to $120 billion in energy efficiency and renewables between now and 2020, which will tap into some of the underutilized resources in our economy, increasing employment rather than reducing it.

Despite NERA’s biased assumptions and ACCCE’s efforts to obscure the conclusions of the analysis it commissioned, a closer look at the results yields the big reveal:  Even the coal lobby’s analysis can’t help but show that the benefits of carbon pollution standards far outweigh the costs.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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