EPA Greenhouse Rule: Going for the Capillaries

By Kennedy Maize

Washington, D.C., 28 March 2012 — Just how significant is the Obama administration’s new regulation on carbon dioxide emissions from new coal-fired power plants, announced yesterday? From here, it looks like a fair amount of ado about not very much.

In today’s cynical political environment, it’s hard not to see the Environmental Protection Agency rule as a willful case of making a big political impression without having much economic impact. Don’t misread me. I approve of the deception inherent in the Obama policy, although I would prefer a candid admission that this isn’t a fight worth waging on substantive grounds. The ultimate outcome of the EPA policy is likely to be at most a nudge for natural gas in electric generation, already in the midst of a major boom.

One of those who quickly saw through the Obama regulatory sleight-of-hand, although he put his own spin on it, was Michael Brune of the Sierra Club. He told the New York Times, “It’s a rule that follows the marketplace. Right now, next to no coal plants are being built. This basically means that new coal plants are going extinct.”

Ed Crooks, the fine U.S. energy reporter for Britain’s Financial Times had a pertinent tweet (@Ed-Crooks) following the announcement of the rule: “The EIA expects coal-fired generation capacity to be 286GW in 2035. If the US does not build a single new coal plant, it will be 275GW.” In short, the rule won’t even change the velocity, let alone the direction, of today’s gas-centric generating market.

The EPA rules produced the predictable posing and policy huffing-and-puffing on all sides. The American Coalition for Clean Coal Electricity warned that the rule “could cause the premature closure of many more coal-fueled power plants operating today.” Note the use of the conditional “could.” The claim is hollow. The Natural Resources Defense Council said the “logical next step is to improve the aging fleet of existing coal-fired power plants….” That’s not likely, however one defines “improve.”

The politicians also chimed in with high dudgeon and empty rhetoric. Sen. James M. Inhofe (R-Okla.) said he will try to block the rules in Congress. Sen. Lamar Alexander (R-Tenn.) bellowed, “Determining how to regulate carbon dioxide is the job of Congress, not the EPA.” Don’t hold that CO2 in your lungs until Congress acts; it’s a sure way to asphyxiate.

Purely coincidentally, yesterday morning, before the EPA announcement, I downloaded a new “discussion paper” from Resources for the Future, the perceptive Washington environmental, energy, and economics think tank. The paper by Dallas Burtraw, Karen Palmer, Anthony Paul, and Matt Woerman models the U.S. electricity market to look at how regulations versus market (secular) trends influence the generation mix and electricity prices. “This analysis,” they report, “shows that the change between 2009 and 2011 in projections of natural gas supply and electricity demand has a much bigger effect on electricity prices, total generation, and generation by fuel” than the high-profile regulations.

The RFF paper looks specifically at the EPA’s recent interstate ozone pollution rule (CSARP) and the new mercury rule (MATS), not at the greenhouse rule promulgated just days after the discussion paper surfaced. But I’d be surprised if the story were any different for the greenhouse gas rule, which appears to be designed to have little real effect.

This is not to say that the RFF analysis concludes that pollution controls have had no impact, only that the economic impact has been overstated. The power industry has always disingenuously claimed that EPA rules will raise prices and impoverish masses of middle-class Americans, but that’s not what RFF has found.

Countering those dystopian claims, says the RFF paper, “The one area where the regulations matter more than secular trends is emissions.” The rules do lower SO2 and Hg emissions more than just letting markets work. Presumably, more stringent CO2 regs might also reduce greenhouse gas emissions more than the shift to methane will accomplish by itself. But it’s unlikely the EPA rules announced yesterday will do that and, in my opinion, that’s just fine. The carbon dioxide reductions from the switch to gas are free.