Site menu:

 

February 2015 Policy Study, Number 15-3

   

Obama-Inspired EPA Carbon-Dioxide Regulations May Bankrupt Iowans

   

National Cost Analysis

   

 

The Beacon Hill Institute for Public Policy Research, which specializes in economic and statistical analysis of public policies, is best known for their annual State Competitiveness Index.  They are based at Suffolk University in Boston, Massachusetts.  Recently Beacon Hill has also been researching extensively on renewable and alternative energy costs and benefits, focusing on analysis of individual state mandates and policies.  They just released a cost-benefit study of the implications of the CPP both nationally and for Iowa specifically.  The results are not good.

 

Beacon Hill used their State Tax Analysis Modeling Program (STAMP) to estimate the economic effects of the CPP regulations.  The STAMP system allows researchers to calculate the costs in net present value (NPV) dollars of the benefit or harm of a specific regulatory proposal.  Designed as a computable generalized equilibrium (CGE) model, STAMP accounts for and analyzes the “economic effects of tax policy changes.”[12] 

 

According to their analysis, in 2030 the NPV cost, using a 3 percent discount rate, of the CPP regulations on existing coal power plants will be a negative $16.02 billion.  The total NPV cost, nationally, from 2015 to 2030, is a negative $284.5 billion, with the potential to range as high as $300 billion.[13]

 

The cost impact on new coal power plants is estimated to be negative $8.4 billion in 2040 and a total of almost $44 billion from 2015 – 2040.  The potential negative costs range as high as $72.3 billion over the same time period.[14]  Additionally, a small part of the CPP proposal is the increased regulation of mercury, estimated to have an impact of negative $21.4 billion in 2015 and ranging as high as $31 billion.[15]

 

Another study just completed by Energy Ventures Analysis (EVA) shows that instead of cutting power and gas costs for consumers, industry, and businesses the ObamaEnergy Plan will actually result in an increase of over $170 billion in power costs by 2020, a 37 percent increase in real costs.[16]  Of that the electricity cost increase is $98 billion and the natural gas cost increase is $75 billion.  Some families will be bankrupted by this.

 

By 2020 households will actually see an average annual increase of $293 in their power and gas bill.  This is broken out as approximately $102 more for electricity and $190 more for gas or heating.[17]  The industrial business sector will be hit even harder with increases of 64 percent in their electricity and natural gas costs.  This cost will, of course, be passed on to consumers through the prices of the products we buy.

 

The EVA report shows that residents of Louisiana, Mississippi, North Dakota, and Texas will be hardest hit as their power sources are heavily coal and gas based and costs are estimated to go up by over 115 percent.  Residential electricity costs are a key part of this, with estimated annual bills expected to increase by $566 in Maryland, Mississippi, Pennsylvania, Rhode Island, and Texas.[18]  States in the Northeast and Upper Midwest, including Iowa, will be hardest hit through their winter heating and gas bills.

 

The table below shows these increases.

 

United States Electricity and Natural Gas Cost Increases (Real Dollars)

2012

2020 CO2 Case

Increase ($)

Increase (%)

Average Annual Residential Customer's Electricity and Natural Gas Bill ($)

$1,963

$2,256

$293

15%

Industrial Electricity Rate (cents per kWh)

6.7

8.9

2.2

33%

Total Cost of Electricity and Natural Gas for All Sectors ($ billion)

$470

$644

$174

37%

* Figures in constant 2012 dollars

Source:  Energy Ventures Analysis, p. 6.

 

Importantly, the EVA analysis also takes into account the other regulatory upgrades and costs, separate from the CO2 changes, which these same coal-fired plants must also make during the same time period.  This includes the Mercury and Air Toxics Standards (MATS) and the Regional Haze requirements.  The CPP does not stand alone in impacting energy costs as power plants which remain open must meet all standards, not just one.

 

The EVA report also questions whether the underlying EPA assumptions on various operational and efficiency improvements, outside of the CPP requirements, are reasonable.  This includes a 6 percent improvement in heat generation rate, a 70 percent combined cycle gas turbine utilization rate, state renewable energy policies resulting in over 200 percent more “renewable” energy generation, and demand/user efficiencies of 250 percent.[19]  The last category, “user efficiencies” and user demand reductions, means that we, the consumers of electricity and heat, would return to the days of the 1970s – where homes were only heated to 62 degrees in the winter and cooled to 90 degrees in the summer, and Christmas lights were prohibited.

 

 

The EVA analysis begins with the same data used by the EPA, then adds a mix of additional industry and consumer information and proprietary data analysis methods to develop a more robust and, they believe, accurate representation of the effects of the CPP regulation. 

 

Among other things, the EVA has developed a power capacity and generation mix projection showing a significant move from coal to natural gas.  This may, or may not, be an environmentally positive thing, but it does increase the final costs to consumers.

 

By the year 2020 capacity moves from 31 percent coal and 41 percent natural gas to only 20 percent coal and 50 percent natural gas, while renewables show a slight increase to 10 percent from 7.  The resulting power generation from this capacity follows the same pattern, as might be expected.  Generation by coal reduces from 39 percent to 22 percent and increases for natural gas from 29 to 45 percent.  Renewables have no significant impact, moving from 5 to 7 percent of generation.[20]

 

Whether this change is good or bad remains to be seen; the critical factor is that it is driven by government (EPA) regulation.  It follows President Obama’s stated goal of driving the coal industry into bankruptcy and is not a normal, market-driven economic change based on equal or fair competition.

 

   

 

Click here for pdf copy of this Policy Study

 

All of our publications are available for sponsorship.  Sponsoring a publication is an excellent way for you to show your support of our efforts to defend liberty and define the proper role of government.  For more information, please contact Public Interest Institute at 319-385-3462 or e-mail us at Public.Interest.Institute@LimitedGovernment.org