In February 9th testimony before the House Committee on Energy and Commerce, Dr. Margo Thorning of the American Council for Capital Formation presented on the economic implications of EPA regulation on greenhouse gases. Following the hearing, analysts from WRI and the American Council for an Energy-Efficient Economy issued the following statement in response to Dr. Thorning’s testimony. WRI’s response highlights questionable assumptions in Dr. Thorning’s modeling and outlines the benefits of industrial sector energy efficiency improvements.
In her February 9th testimony before the House Committee on Energy and Commerce, Dr. Margo Thorning based her primary conclusions regarding possible negative economic implications of Environmental Protection Agency (EPA) regulations on modeling and policy analysis supported by questionable assumptions that have been criticized by expert economists on several recent occasions. Dr. Thorning's approach to economic modeling has been commonly used by opponents of environmental regulations for years. Peer-reviewed studies, based on more supportable modeling assumptions (i.e., grounded in empirical data), have demonstrated that her pessimistic assumptions and one-sided, cost-only modeling practices will inevitably yield gross over-estimates of the economic costs of such regulations. Based on our careful review of Dr. Thorning's testimony and our own research on the subjects of public policy, industrial energy efficiency and economic modeling, we reached the following conclusions:
The EPA is proceeding in a reasonable manner with the regulation of greenhouse gas emissions by focusing on cost-effective opportunities for energy efficiency and by limiting requirements to the largest pollution sources.
Dr. Thorning makes the unrealistic, unfounded assumption that the U.S. economy is constantly operating under optimal conditions – and that all resources are efficiently allocated at all times – leading her directly to the following incorrect conclusions of core significance to her testimony.
First, Dr. Thorning’s economic model operates under the assumption that business-as-usual is always optimal and any public policy – including energy efficiency policies – can only slow economic growth and yield net job losses.
Second, she asserts, without supporting evidence, that U.S. manufacturers are currently operating at optimal energy productivity and that public policy has no role to play in removing barriers or otherwise increasing private sector investments in industrial energy efficiency.
In fact, there are many untapped opportunities for cost-effective investments in industrial energy-efficiency. With roughly half of industrial boilers in the United States now more than 46 years old (Energy and Environment Analysis, 2005), for example, there is abundant evidence that facility upgrades could increase productivity, with net benefits for manufacturers and for the economy as a whole.
John A. "Skip" Laitner is Director, Economic and Social Analysis Program at the American Council for an Energy‐Efficient Economy.