EPA Gets It Right on Carbon Dioxide from Power Plants by David Montgomery

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The new proposed rule for carbon dioxide emissions from power plants is an important milestone in correcting the regulatory overreach of the Obama Administration. This proposal would replace Obama’s excessively costly and legally questionable Clean Power Plan with an approach that stays within the Environmental Protection Administration (EPA)’s legal authority and provides maximum flexibility to state regulators.

The Obama-era Clean Power Plan was stayed by the Supreme Court because of concern that it went beyond the authority granted to EPA by the Clean Air Act. EPA claimed it was using its authority to regulate types of air pollution not specifically mentioned in the Clean Air Act that it determines are a danger to health and welfare. EPA had previously found that carbon dioxide from electric generators did so due to its effect on global warming, opening the door to regulate those emissions.

What EPA failed to do was stay within the authority it was granted by the Clean Air Act to regulate this type of pollution. That authority is limited to issuing guidance for the kinds of emission control technologies that states should consider in setting emission standards that electric generators must meet.

In every other case when this authority was used, it was clearly understood that states were only to consider emission controls that could be applied “inside the fence” of the generating units in deciding what it was reasonable to require.

In this case, EPA told states to base standards on new and unproven emission control technologies, knowing full well that the result would be standards that could not be met with controls applied “inside the fence.”

EPA did this in order to force electric generators to pay for emission reductions by others, in order to get greater emission reductions than the generators could achieve themselves. That is what the Supreme Court saw as a potential step too far.

In writing its regulations, the Obama EPA largely ignored another problem: the modifications that it envisioned for coal-fired power-plants would also trigger something called “new source review.” Logically, the law applies much more stringent standards to new power-plants, which can be designed to meet them from the ground up, than it does to existing power-plants that can only be retrofitted. But this creates something of a loophole, to do what we do on the Eastern Shore to avoid critical area restrictions on new construction: replace everything that is now there piece by piece until you have something brand new.

Unfortunately, EPA defined a “new source” much too broadly. Just about anything that would make a generating unit more efficient – which means using less fuel and therefore having less emissions per kilowatt-hour of electricity generated – was ruled to make it a “new source.” This meant that the well-intentioned effort to reduce carbon-dioxide emissions could subject the owner to fines, litigation and requirements to make far more extensive and prohibitively costly improvements.

For that reason among others, it was predicted that Obama’s Clean Power Plan would cause many coal-fired power-plants to be retired, drive electricity rates up, and potentially threaten reliability of some coal-dependent systems. These effects, especially if the courts knocked out the ability of generators to buy emission reductions from others, could have added up to electricity rate increases of 10% in some regions and overall economic losses as high as $70 billion annually. This according to studies by the Energy Information Administration and my former colleagues at NERA Economic Consulting.

All these problems would be fixed by the new rule. It declares that improvements in the efficiency of a coal-fired power-plant – known as “heat rate improvement (HRI)” measures – are the best system of emission reduction. This is consistent with EPA’s authority under the Clean Air Act. It cleans up the guidance given to states and EPA to make clear that they are not to use this authority to force generators to pay others to reduce their emissions. And it revises the New Source Review program to make sure that such measures do not make the unit a new source.

The Regulatory Impact Analysis that accompanies the regulation, like the RIA that accompanied the revised fuel economy standards I wrote about two weeks ago, explains the emission reductions and cost reductions the new rule would achieve. EPA’s estimate is that by replacing Obama’s Clean Power Plan with its heat rate improvement standards and reforming new source review it will reduce compliance costs by substantially more than it reduces climate benefits, thus coming out with a net positive economic benefit compared to the Obama rule.

In looking at how the new rule reduces compliance costs it is important to keep in mind how little even the Obama Clean Power Plan did to slow global warming.
Straightforward calculations using EPA’s own figures for emission reductions and official forecasts of future greenhouse gas emissions and temperature increase show that the Clean Power Plan would slow increases in global average temperature by less than one one-hundredth of a degree (0.01°) Celsius by 2050.

In fact, Obama’s EPA did not even try to justify its rule based on climate benefits. Instead, the only way it could find benefits greater than costs was by claiming that shutting down coal-fired power-plants would also reduce particulate matter (PM) and ozone pollution – two forms of pollution that are already covered by National Ambient Air Quality Standards that EPA must set at levels that eliminate risks to human health.

Think about that.

Obama’s EPA claimed that regulating carbon dioxide would produce health benefits. Then it admitted it could not find measurable health benefits from doing something about global warming. Instead, it added in health benefits from reducing other pollutants that it is already required to bring down to levels no longer harmful. That is purest chicanery. Since EPA is already required to clean up PM and ozone to the point that they do no damage, introducing some unrelated regulations that happen to reduce those emissions doesn’t mean a thing. You had to do it anyway.

Once you eliminate the double-counted benefits of pollution already being controlled under the National Ambient Air Quality Standards, even Obama’s EPA could not find an economic justification for its rule. EPA’s new rule implicitly recognizes that you cannot justify climate regulations based on health effects and knocks out a major share of the costs that the Obama rules would have imposed. Good job.

David Montgomery is retired from a career of teaching, government service and consulting, during which he became internationally recognized as an expert on energy, environmental and climate policy.  He has a PhD in economics from Harvard University and also studied economics at Cambridge University and theology at the Catholic University of America,   David and his wife Esther live in St Michaels, and he now spends his time in front of the computer writing about economic, political and religious topics and the rest of the day outdoors engaged in politically incorrect activities.

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