The coal lobby grabbed my inhaler: another junk industry analysis of EPA regulations
National Economic Research Associates (NERA) is at it again, producing yet another industry-backed report (click here, here and here for some others) claiming economic calamity from proposed environmental regulations. Funded by the leading coal-industry front group, the American Coalition for Clean Coal Electricity (ACCCE), the report makes assumptions that artificially inflate costs, and displays a level of (non)transparency so egregious it would never pass a peer-review process.
Against exaggerated cost estimates, NERA ignores sizable benefits of the regulations, including preventing tens of thousands of premature deaths, nonfatal heart attacks, and hospitalizations and emergency room visits, almost a million cases of aggravated asthma and other respiratory ailments, and millions of days of missed work or school due to illness, per year (click here, p, 1-2, and here, p.12).
The report sets out to analyze the collective economic impact of four EPA proposals, including the Utility MACT (Maximum Achievable Control Technology, proposed as standards for “mercury and air toxics”), the Cross-State Air Pollution Rule, standards for Coal Combustion Residuals (coal ash hazardous waste), and the Cooling Water Intake Structures Rule under 316(b) of the Clean Water Act. It is cloaked in two sophisticated and well regarded economic models, NEMS and REMI, broadly used by government agencies, non-partisan institutions, the private sector, and universities.
Don’t be fooled by the respected models: NERA feeds results from its own obscurely documented proprietary one, and a set of illegitimate assumptions, into them. Here are some:
1) While approximately 12% of coal fired power plant capacity (39GW) will be retired by these new rules (consistent with other forecasts), NERA doesn’t actually say how much power generation this represents. EIA data suggests it is likely to be around 2% of our national power output, given how infrequently these older, dirtier plants run. These conclusions are roughly in line with financial industry estimates, that find this reduction in power generation having very limited impacts on power prices, due to slower demand growth projections, cost savings from fuel switching away from coal to natural gas, and accelerated use of demand response by utilities to reduce the need for shoulder power during peak loads. (Shoulder power refers to the little bit of extra power needed during peak load on extreme temperature days. It amounts to only a few hours in a day, on a few days of the year, and is often provided by old, dirty plants that otherwise are not running).
2) While the retirement estimates seem largely in line with other analyses, NERA makes a number of assumptions that significantly inflate compliance costs:
- NERA incorrectly assumes that most coal plants will have to install equipment of some sort. However, a May 2011 report, published by Sue Tierney of the Analysis Group, finds that over 150 GW of the 320 GW of coal capacity in the U.S. already have control equipment installed that would bring those units into compliance with the rules, with an additional 55 GW of retrofits in progress. This amounts to more than two-thirds of the nation’s coal fleet being in compliance with the rules without incremental capital expenditures.
- NERA assumed power plants would have to purchase multiple pieces of equipment to comply with the regulations; there is no discussion of the fact that some technologies enable compliance with more than one regulation. Some utilities are evaluating the co-benefit potential of control technologies in order to determine how they intend to comply with MACT.
- NERA assumed that plants would have to comply with the cooling water rule by 2015, when in fact the guidance in the rule proposal states that the compliance window begins three years later and over a period of four years, from 2018 to 2022.
- NERA assumes only natural gas or less polluting coal plants will be available as substitutes for the coal plants retired or not built due to the regulations. But alternative sources of power, especially wind, could provider cheaper energy in some areas.
3) Suspiciously, NERA also leaves out some key information:
- It does not report what actual plants are retired, making it impossible to evaluate how the power they would have provided might be offset by other local sources.
- Underlying assumptions on coal prices, natural gas prices, energy efficiency, peak and energy demand and financial assumptions (including debt life, book life, cost of capital, inflation, charge rate, equity and debt rates, and equity and debt ratios) are not disclosed.
One last point: the pollutants reduced by these regulations do not account for all of the health and environmental damages caused by coal. In a recent paper published in the top (peer-reviewed) economics journal by Muller, Mendohlsohn, and Nordhaus titled, “Environmental Accounting for Pollution in the United States Economy,” the authors calculated the gross economic damages (GED) from air pollution for each industry in the United States, concluding that the largest industrial contributor to external costs is coal-fired electric generation, with a GED of 2.2 (central estimate) times value added (generally speaking, value added is the difference between materials costs and sales revenue; it is divided between workers in the form of wages and owners of capital as profits).
The fictional claims in NERA’s September 2011 study for the ACCCE are built on a house of cards. NERA’s traditional tactics of non-disclosure and deficient analysis not only contradict EPA and peer-reviewed studies, they once again wholly discredit their conclusions.
This post was coauthored with my colleague Starla Yeh, at NRDC’s Center for Market Innovation, and Andy Stevenson, an NRDC Advisor specializing in finance.
 Goldman Sachs, August 30th, October 9th, and October 24th, 2011 Equity Research statements.
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