Obama's EPA Carbon Rationing Plan: Cost Effective or Just Costly?

Back in 2009 at the Copenhagen UN climate change conference President Barack Obama promised to cut by 2020 U.S. planet-warming carbon dioxide emissions by 17 percent below the level emitted in 2005. Today, the Environmental Protection Agency has announced the president's Clean Power Plan that aims to cut carbon dioxide emissions by 2030 at existing electric power generation plants by 30 percent overall. Each state will be given a specific goal and be responsible for figuring out how to achieve its mandated reduction goal using a mixture of policies that include switching from coal to natural gas, building more wind and solar power, and/or pricing emissions in carbon markets.

The EPA has crunched the numbers and assures the American public that benefits of implementing this program will hugely outweigh its costs. In its regulatory impact analysis, the EPA calculates the global climate benefits using the social cost of carbon derived from a controversial Interagency Working Group report. That analysis found that social cost of carbon in 2020 ranged over $13, $46, $68, and $137 per metric ton of CO2 emissions (2011 dollars) depending on the discount rate picked by the analysts. The discount rates used were 5, 3, and 2.5 percent. The Working Group derived a high-end figure of $137 per ton in 2020 by looking at the worst 5 percent of the distribution, i.e., the less likely but possibly catastrophic damages using a 3 percent discount rate. 

With regard to deriving a social cost of carbon, the EPA's regulatory impact analysis does caution that ...

...any assessment will suffer from uncertainty, speculation, and lack of information about (1) future emissions of greenhouse gases, (2) the effects of past and future emissions on the climate system, (3) the impact of changes in climate on the physical and biological environment, and (4) the translation of these environmental impacts into economic damages.

Other than that, everything is evidently OK.

Depending on the discount rate selected, the global climate benefits (not the climate benefits to the U.S.) from implementing this 30 percent reduction in power plant carbon dioxide emissions in 2020 will amount to $4.9 billion, $18 billion, $26 billion, or $52 billion. By 2030, the global benefits would rise to $9.5 billion, $31 billion, $44 billion, or $94 billion. These are just the benefits from lowering future increases in global average temperatures. The vast majority of the benefits have nothing directly to do with cutting carbon dioxide emissions by 30 percent.

The real bang for the buck comes in the form of health co-benefits arising from cuts in air pollutants like sulfur dioxide, ozone, mercury, and particulates. In fact, more than 70 percent of the health co-benefits apparently result from reductions in sulfur dioxide emissions.

The EPA calculates that the maximum cost for implementing the new regulations amounts to $7.5 billion in 2020, while the maximum net climate and health benefits range from $27 to $50 billion at a 3 percent discount rate or $26 to $46 billion at a 7 percent dicount rate. On it's face, that sounds like a pretty good deal. But as I reported last August in my article, "The Social Cost of Carbon: Garbage In, Garbage Out," anyone can pretty much conjure whatever number one wants when it comes to cranking out the social cost of carbon through integrated assessment models that combine econometric and climate prognostications.

Another interesting feature is that the Obama administration's social cost of carbon estimate is for global benefits, although the rules from the regulatory oversight agency, the Office of Management and Budget specify that benefits and damages of proposed regulations should be reported in terms of domestic impacts, with global impacts being optional. The domestic social cost of carbon would likely hover around $2 per metric ton which suggests that the domestic climate benefits from the proposed EPA regulations could actually amount in 2020 to as little as $700 million up to a worst case of $7.8 billion. Compare those benefits with an estimated cost of $7.5 billion to implement them.

Finally, as the New York Times helpfully points out today, the goal of the new EPA mandates is not to save the climate but to "reclaim leadership on climate change."

More analysis of the impacts of the new Clean Power Plan to come.

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  • Dances-with-Trolls||

    "So Ron Bailey, Steve Chapman, and Sheldon Richman walk into a bar..."

  • LiveFreeOrDiet||

    You would have thought one of them would have seen it!

  • some guy||

    Finally, as the New York Times helpfully points out today, the point of the new EPA mandates is not to save the climate but to "reclaim leadership on climate change."

    I thought the US was already the leader on (causing) climate change. Wasn't that supposed to be the problem?

  • LiveFreeOrDiet||

    They want us to buy into something when they can't get it down to a single order of magnitude?

  • R C Dean||

    The domestic social cost of carbon would likely hover around $2 per metric ton

    Or $0, if you haven't bought into catastrophic AGW hook line and sinker.

  • ||

    What I want to know is how in the hell do they come up with these numbers?

    "well, if we cut emissions X percent it result in Y percent of positive things."

    Really? I am assuming there is actual arithmetic involved that uses empirical data in which to make these grandiose predictions?

    Meanwhile, I suppose we should be thanking the fact that the economy tanked and the natural gas boom (fracking) as the US has lowered emissions of CO2 faster than pretty much anyone else in the last decade without said mandates.

  • Ron Bailey||

    Tman: With regard to coming up the costs and so forth, do consider clicking on the link to my article on the Social Cost of Carbon.

  • LiveFreeOrDiet||

    I wonder if these "plausible" numbers which have "no theoretical or empirical basis" have also thought at all of the fossile fuel CO2 fertilization effect that satellites have shown. I remember a video posted here with Matt Ridley explaining the Earth is getting greener.

  • R C Dean||

    I'm struggling with how something can be both "plausible" and baseless (that is, have no theoretical or empirical basis).

    Little help here?

  • LiveFreeOrDiet||

    Plausible: Well-spoken and apparently, but often deceptively, worthy of confidence or trust."

  • ||

    Thanks Ron, I actually remember when you posted that one last year.

    So since you quoted Pindyck last year who stated 'the models all "have crucial flaws that make them close to useless as tools for policy analysis" has anything changed?

    Do they have any better or more useful numbers with which to make these massive cost calculations?

  • Ron Bailey||

    Tman: No.

  • Joe Durnavich||

    I'd like to see the Social Cost of Government calculation.

  • ||

    "What I want to know is how in the hell do they come up with these numbers?"

    Unicorn farts.

  • Ahem'||

    That's right, and those unicorn farts create green house gasses to boot!

  • nailzer||

    So we stifle our economy by losing jobs, companies moving to countries with lower energy costs, and the rest of the world keeps building coal fired power plants while we sit home in the dark with our windturbines and solar panels proclaiming our leadership in fighting climate change to the world. I can't wait.

  • jmomls||

    Yup--and don't forget your sprouts, those will be the only foodstuffs you'll be allowed to eat you greedy, vulgar, ugly American death sucker.

  • PapayaSF||

    But these are figures from the Green Policy Numbers Out of My Butt Foundation. I'm sure they're reliable.

    One number that seems to be missing: exactly how much cooler with the Earth be, in degrees Fahrenheit, in 20 or 50 or 100 years? My guess is that the answer involves lots of zeros to the right of the decimal.

  • Joe Durnavich||

    According to President Obama, his new plan of raising energy prices will actually save you money in the long run:

    "DYK: New emission standards will shrink electric bills by about 8% by increasing energy efficiency and reducing demand."

    http://tinyurl.com/k2vxy2q

  • Ahem'||

    Oh oh oh it's magic.

  • ConstitutionFirst||

    Just like the $2500/year we save on socialized Medicine?
    Ask a Veteran what they think about Government running their healthcare.
    Everything about this Usurper with the Redacted Resume screams "Impeachment"

  • Mike M.||

    So you think that Obamacare has been harmful to the economy recovery and American jobs?

    You've seen absolutely nothing yet, suckers. Obama still has well over two years of havoc left to wreak on America, and the worst is yet to come.

  • pan fried wylie||

    B-b-b-b-baby, you just ain't seen nothin yet!

  • Rev-Match||

    Environmental Protection Agency has announced the president's Clean Power Plan that aims to cut carbon dioxide emissions by 2030 at existing electric power generation plants by 30 percent overall.

    'Constitutional Republic'. What is it?

  • GroundTruth||

    This action and the effects that it WILL have on the US economy are forcing me to start to agree with those who believe that Obama actually is deliberately trying to destroy this country.

    A very sad day.

  • ConstitutionFirst||

    Destroy America on the back of a lie!
    If we were to believe such a lie, China and India are the problem...
    The silence is deafening.

  • Vampire||

    Just more money they get to extort from the people. Gee, wasn't government supposed to be uber efficient? Don't the socialists (aka liberals) and many conservatives alike believe that more government is needed so they can be more efficient??? Between the money robbed through taxation, and the money robes through inflation (money printing), they should have been able to build giant carbon capture machines by now.......

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