Despite fears that the Obama administration’s proposed rule to curb carbon-dioxide pollution could wreak severe damage on the economy, the true effect is likely to be much more modest. And a key reason can be linked to the nation’s boom in natural gas production.
The Environmental Protection Agency, in announcing plans Monday to reduce power plant emissions 30% by 2030 from 2005 levels, estimated that the measure will cost up to $8.8 billion annually for compliance.
It noted that the health and social benefits from the cleaner air probably will exceed $55 billion a year by 2030, far outweighing the costs.
The government’s cost figures were much smaller than last week’s U.S. Chamber of Commerce estimate that the rule would dent the economy by $51 billion yearly. The chamber said Monday that it was revising its calculations because the actual EPA rule was less onerous than the 42% emissions reduction the business group used for its analysis.
Nevertheless, in a harbinger of the business community’s campaign to fight the proposed regulation, the chamber’s president, Thomas Donohue, insisted that the new EPA rule would add “immense cost and regulatory burdens on America’s job creators.”
The Business Roundtable, another influential group of large companies, offered a more muted comment, neither endorsing nor criticizing the climate-change proposal.
Business groups are mindful that the new rule is being issued as economic growth and hiring, which have been disappointingly slow through the last five years of recovery, are showing signs of accelerating.
And even if the $51-billion figure were accurate, several economists noted, the cost would be dwarfed by the nation’s $15-trillion-plus economy.
Dallas Burtraw, a senior fellow at Resources for the Future, a research group in Washington, estimated that it would cost $7 billion a year for businesses, households and the government to comply with the new EPA rule, roughly in line with the government’s estimate.
He said any increase in electricity bills for consumers would probably be small — in the range of 2% to 3% a year over the next decade — because the cost of compliance would be borne mostly by owners of smaller, less-efficient coal-fired power plants.
Because of the nature of the electricity wholesale market system, these plants, many of which could now be closed as a result of the proposed rule, cannot simply pass on their higher costs to consumers, Burtraw said.
“If the states do a good job directing investment into cost-effective energy efficiency with a goal of maximizing value for consumers, then households will most likely see electric rates go down as a result of this proposed rule,” said Tyson Slocum, director of the energy program at Public Citizen, a consumer advocacy group.
It remains to be seen how much efficiency and technological innovation the new rule will drive. And there are concerns that higher electricity rates, however small, will be felt most by those least able to afford the change.
Still, the Obama administration’s proposal gives the states considerable flexibility to design programs to address such inequity concerns as well as achieve emissions reductions in a relatively cost-effective way, said Lawrence Goulder, an environmental economics expert at Stanford University.
“Even if you ignore the benefits in terms of avoided climate damages, if policymakers are smart,” he said, “the impacts on the economy could be very small and in some cases could be zero.”
There’s little doubt that the EPA’s regulation will hasten the shutdown of many of the nation’s 600 coal-fired power plants, which together are the biggest emitters of greenhouse gases and account for 40% of electricity generation.
Some jobs will be lost in the process. Yet much of the reduced coal power-plant capacity, and the lost jobs, are expected to be replaced with an expansion of natural gas-fueled power.
In recent years new drilling techniques such as hydraulic fracturing, or fracking, have yielded an abundance of natural gas, and the regulation will speed up what had been a market-driven shift to gas. Natural gas now is expected to exceed coal as the primary source of electricity generation by 2030.
The surfeit of cheap natural gas already has reduced U.S. dependence on foreign oil and become an important competitive advantage for domestic manufacturers.
Although coal-mining work is more labor intensive than extracting natural gas, studies have shown that natural gas plants employ slightly more workers than those at coal-fire generating facilities. So from an operational point of view, there should not be any loss in jobs, said Chris Lafakis, an energy economist at Moody’s Analytics.
Nor is the new rule likely to cost jobs in industries such as construction. On the contrary, Lafakis reckoned that if half the carbon-emissions reduction were met by closing coal plants and building natural gas generators, the construction sector would gain a total of about 62,500 jobs through 2030.
“The new rule wouldn’t cost us coal construction jobs, either,” he said, “since coal plants weren’t going to be built even before Monday’s rule.”
So how did the chamber and groups such as the American Coalition for Clean Coal Electricity, which represents mining companies, conclude that the EPA rule could result in some 3 million fewer jobs through 2030?
In their view, the costs of compliance would be very large and ultimately passed on to businesses and households in the form of higher electricity prices. And if consumers have less disposable income to spend on goods and services, that would spill into the broader economy and take a toll on company profits and hiring.
Households and businesses, especially in coal-strong states such as Kentucky and Indiana, will feel a sharper pinch, but there are reasons to think the overall national effect will not be as large as some fear.
Apart from its expectation of a more stringent carbon-reduction rule than what was proposed, the chamber assumed that new natural gas plants would have to install so-called carbon capture and sequestration equipment — a potentially powerful but expensive system of mitigating greenhouse emissions.
Based on the chamber’s report, adding this technology in natural gas plants could double construction costs.
But the EPA did not specify this as a requirement, instead giving states flexibility to meet emission targets through renewable energy, more efficient use of electricity and programs such as cap-and-trade, a market-based approach that lets states set a limit on carbon emissions and buy and sell permits to pollute.