Thursday, June 12, 2014

Doing Violence to the Facts

The EPA last week proposed the first ever regulations to limit carbon emissions from existing coal and gas fired power plants and – I know you’ll find this hard to believe – the Montana Chamber of Commerce doesn’t like them one little bit!

Writing in the Billings Gazette, Glen Oppel, the Chamber’s executive director, assails the regulations for costing too much, accomplishing too little, and killing any future that might be there for “clean coal” technology. Pretty standard stuff, but along the way Oppel does an awful lot of violence to the facts, and to clear thinking about the EPA’s important initiative to combat climate change.

With respect to the facts: Oppel cites several negative impacts of the standards – on GDP, employment, electricity costs and so forth – without telling us that the numbers apparently come from a study commissioned by the US Chamber of Commerce.  Now not everybody thinks the Chamber’s analysis is valid, but here’s the thing: whether or not you like it, it is important to know that the study was an attempt to assess the impacts of a much larger reduction in emissions than actually called for in the EPA standards. So the facts and numbers which Oppel liberally cites are totally inapplicable to the standards we are actually dealing with, and Oppel should know that.

With respect to clear thinking: Oppel gives us a lot of big, scary numbers to worry about, but no way of judging their significance. So, for example, he tells us that implementing the standards will reduce US GDP by an average of $51 billion every year from now through 2030! That sounds like an awful lot, but is it? Take a look at the chart below, where I have plotted the Congressional Budget Office’s estimate of real GDP from 2020 to 2030, in blue, and those same numbers, reduced by the Chamber’s estimate of the GDP lost due to the regulations, in red. The figures are in billions of 2011 dollars, and remember that the Chamber is assuming a bigger, and presumably more costly, reduction in emissions than the EPA is actually proposing.

If you are having a hard time seeing any difference between the two lines, don’t feel bad. It just means that the Chamber is telling us, albeit inadvertently and with zero fanfare, that the impact of the regulations is miniscule. In fact, that $51 billion average annual cost of the regulations that the Chamber calculates for 2014 to 2030 amounts to just one quarter of one percent of GDP over the same period. As Paul Krugman puts it: “That’s cheap!”

With regulations the growth of GDP will follow almost exactly the same path as it would have followed without them, but just a tiny bit later. How tiny? Well, here’s an example: the CBO estimates that without regulations, at some point in 2029 GDP will hit the $23.5 trillion mark. With regulations, if the Chamber’s got it right, we (or whoever’s around then) will have only have to wait another 27 days to get to the same point.

Oppel asks us to weigh these costs, such as they are, against a reduction in global emissions of 1.8%, as though it were self-evident that this is a bad deal.  But if we are going to measure the costs in dollars, we ought to measure the benefits in dollars too.  What we want to know is not that global emissions are going down by 1.8%, but the dollar value of the reduced damages we will experience as a result of that emissions reduction. Oppel is silent on that score, but the EPA is not; it finds that the economic benefits from reducing emissions substantially outweigh the costs.

Finally, Oppel argues that the “regulations represent a de facto ban on developing clean coal technology in the United States.” This is nonsense. In fact, the regulations allow the states wide latitude in meeting emission standards, and if states want to deploy clean coal technology and can do so at a cost they find bearable, they are free to go ahead and try it. The only threat to clean coal technology in these regulations is that they require it to go head to head against all the other low cost and proven emission reduction technologies – including enhanced efficiency and renewables – currently available. That’s putting market competition to work, and you’d think Oppel would embrace it.