Tuesday, September 15, 2015

Playing with the Numbers

Unlike Steve Daines and Ryan Zinke, who have really gone off the deep end, there are people out there criticizing the Clean Power Plan for reasons that are at least plausible. Plausible, but fatally flawed.

I’m talking here about folks who seem to grudgingly acknowledge that climate change is a real problem, and concede that the Clean Power Plan is an attempt to do something about it. But in their view the attempt fails, because it costs too darn much and accomplishes so darn little.

It’s an argument that’s been around since last year when EPA made its original proposal, and now that the final version of the rules have been announced, it’s come back.* And it’s an argument that ought to be taken seriously. Certainly from an economic point of view, the alarm bells should start going off if someone can convince you that the plan is going to cost an arm and a leg, destroy the economy as we know it, and have climate impacts that aren’t worth a red cent. 

But before you throw up your hands and conclude that we are all doomed by the inexorable logic of economics, take a deep breath and realize that there is a problem here, which is that the folks who purvey this analysis are playing with the numbers by routinely exaggerating the costs and misrepresenting the benefits of reducing emissions.

Costs are overstated by presenting them as great big numbers (billions! trillions!) and then claiming that it is self-evident that any number that big has to have ruinous economic consequences. Here are a couple of examples:

Brad Johnson tells us in a recent Missoulian op-ed that “The EPA itself admits that the plan comes with an $8 billion price tag every year by 2030 just in compliance costs.” This, Johnson says, will result in our “destroying” our economy. Yep, $8,000,000,000 is a pretty big and scary number. But now get out your calculator and divide that number by 320,000,000, the current population of the United States. The answer, $25, is the per capita annual cost of complying with the Clean Power Plan. That’s seven cents a day, about equal to what we spend on chewing gum and potato chips. Does Johnson, a Montana Public Service Commissioner, really believe that’s going to drive us to the poor house?

Not to be outdone, David Kreutzer, who works for the Heritage Foundation, also writing in the Missoulian, claims that according to the Energy Information Administration “in the decade of the 2020s, lost GDP will total $1 trillion, and total employment will fall by as much as 500,000 jobs.” Whew, $1 trillion! That’s a lot of dough, except when you compare it to $270 trillion, which is about what total GDP is going to add up to during than same decade. What Kreutzer is trying to scare us with here is a plan that is going to reduce national output by 4/10ths of a percent. We can make that back up with about six weeks of normal economic growth.

It’s hard to know what Kreutzer means by employment falling by “as much as 500,000 jobs,” but assuming it means that with the CPP there would be 500,000 fewer jobs each year than would otherwise be the case, the effect is again very, very small; employment would be reduced by 3 tenths of a percent.* *

What do we get in exchange for incurring these costs? Well, according to Johnson and Kreutzer, not very much. Just a small, almost imperceptible reduction in global temperatures, and what good is that? Well, think about it. I’m not sure they really mean that the Clean Power Plan will reverse the rise in global temperatures – which would be quite an accomplishment – or simply slow it down, but in any event, what happens to global temperatures is not really a meaningful measure of the economic benefits of the plan. What counts, rather, is the economic magnitude of the damages that are avoided when the plan is put in place. On that score, Johnson and Kreutzer and most of their cohorts are utterly silent.  But here are the numbers from the EPA.

By 2030 avoided damages to the global climate and US public health add up to between $34 and $54 billion per year. Take the lower number, and it completely swamps the $8 billion worth of compliance costs that Johnson worries about.

It’s fine if critics want to perform a hard nosed, sharp penciled cost/benefit analysis of the Clean Power Plan. But if they’re going to do that, could they please get it right?

* I wrote a number of posts on the rule last year, chiefly responding to critics like Mike Miller, Glen Oppel, Rick Hill, Steve Daines, Alan Olsen and Keith Regier, The US Chamber of Commerce, and Roger Webb. If you missed any of those posts, and haven’t gotten tired of me holding forth on this issue, you can click on the links.

** Be very wary when anyone tells you that some variable, x, could change by “as much as y.” What that means is that y is the most that x might change by; x might not change at all – it might even fall! “As much as” describes the extreme case, not what is actually expected.