Through the Looking Glass with the Clean Power Plan

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Sheila M. Olmstead and David B. Spencei

The Enivronmetal Protection Agency recently proposed repeal of the Clean Power Plan, a key Obama Administration rule regulating power plant carbon dioxide emissions. The law requires the EPA to a prepare a cost-benefit analysis for the repeal, just as it did for the original Clean Power Plan.  

These reports sound boring, but they matter. Why? Because they estimate the effects of these EPA actions on the health and welfare of Americans, and it is important that they be intellectually honest.

This new one is not.

The EPA’s cost-benefit analyses present their estimates as a range of annual economic impacts over time. The Obama EPA projected that its Clean Power Plan would generate net benefits of $1-$7 billion in 2020, rising to $25-45 billion in 2030. The Trump EPA estimated that repeal might result in net costs of $3.8 billion in 2020, rising to $30.6 billion in 2030; or, at the other end of the range, net benefits of  $2.8 billion in 2020, rising to $12.7 billion in 2030.  

The two administrations arrived at similar estimates of the costs of the Clean Power Plan – what power plants and others would have spent on new machinery, fuel switching, and other ways to lower emissions. But the Trump EPA’s benefit estimates are highly suspect.

First, they assign a much lower value to the climate benefits from avoiding one ton of carbon dioxide emissions.. The low end of the Trump EPA’s estimate applies a 7 percent discount rate to future climate damages, something that cannot be justified by serious economic theory, or by empirical studies of how people think about uncertainty over the very long run. The Trump analysis also ignored non-U.S. climate benefits, an approach rejected by many economists.

Second, even putting climate change aside, the repeal would still cause significant net economic damage. Why? Because a majority of the rule’s original benefits were non-climate public health improvements – avoided illnesses and deaths associated with coal-fired power plant emissions (especially fine particles) which kill tens of thousands of Americans prematurely each year.

These numbers put the Trump administration in a bind, because President Trump and EPA Administrator Scott Pruitt have made repealing the Clean Power Plan a priority. Their response has been to attack the Obama EPA’s math on premature deaths and illnesses from coal emissions.  For example, one of their repeal scenarios assumes zero benefits from reducing fine particle emissions below current standards.

COMMENTARY

Reduced coal combustion saves lives. Few facts in environmental policy are as firmly established scientifically. The Trump EPA’s alternative numbers contradict decades of epidemiological literature linking pollution with risks to life and health, and a similarly well-established economic literature estimating the value we humans place on avoiding those risks. 

Courts take a dim view of environmental reviews that lack scientific support or are artificially-circumscribed to avoid inconvenient truths. The facts make justifying repeal difficult to do in cost-benefit terms; the result is an EPA analysis that could have been written by Alice and her friends in Wonderland.  We should all object to this misuse of a critical policymaking tool. 

The proposed Clean Power Plan repeal is mum on whether the rule will be replaced. Congress could make this moot and implement a modest carbon tax (say, $15/ton). That would capture the health benefits of the Clean Power Plan and generate revenues to help pay for other tax cuts, and it has the support of some Congressional Republicans. 

If the Trump EPA proposes a replacement, we are likely to see more alternative facts. And this may not be the last indefensible benefit-cost analysis from the Administration.  Other Obama-era rules regulating fossil-fuel combustion may also be on the chopping block, and any scientifically-grounded approach to repeal will have to explain why the administration chooses to forgo sizeable net benefits centered on human health.  

That will continue to be a very difficult case to make, and a bad deal for all of us.


iSheila Olmstead is a former senior economist for energy and environment at the President’s Council of Economic Advisers and professor of public affairs at the University of Texas at Austin LBJ School of Public Affairs. David Spence is a professor of law and regulation at the University of Texas at Austin McCombs School of Business and School of Law.


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