President-elect Trump has claimed that EPA regulations are causing significant harm to the U.S. economy. Oklahoma Attorney General Scott Pruitt and former Texas Governor Rick Perry, Trump’s nominees to head the Environmental Protection Agency and the Department of Energy, have made similar assertions. Their top target has been the Clean Power Plan (CPP), EPA’s regulation of carbon dioxide emissions from U.S. power plants that is currently being held up in the courts, and which Pruitt says will threaten the affordability of power generation across the country.
WRI recently reviewed several of the major economic studies of the CPP and found there isn’t any credible information to support Pruitt’s claims.
Reviewing the Studies
In a new working paper, we looked at four studies of the economic impacts of CPP, one conducted by EPA and three by private consulting firms: NERA Economic Consulting, Synapse Energy Economics, and MJ Bradley & Associates. These aren’t the only four studies that exist on this topic, but they were the first major studies to be released that provided sufficient information on their underlying assumptions to enable a detailed review. (We commend each of the four organizations on their transparency and willingness to answer our questions.)
Studies looked at the CPP’s likely effect on consumer electricity bills, an important indicator of its affordability. Of the four studies, only one study showed electricity bills increasing unequivocally as a result of the CPP, and it was funded by an advocacy group representing American coal producers. The EPA study found that bills would initially increase, then fall. The other two studies, both funded by groups that support action to reduce greenhouse gas emissions, found electricity bills would unequivocally fall on account of the CPP.
These four studies arrive at markedly different forecasted impacts because they use strikingly different assumptions, for example, on the costs of lower-carbon electricity sources. In every case, the study funded by the coal advocacy group used assumptions at or above the top of the range of expert forecasts or empirical estimates of the costs of clean energy available in late 2015 when the studies were conducted. In other words, the study assumed that the rapid advances in clean technologies like solar and wind energy prior to 2015 would not continue into the future, a hypothesis that has already been proven wrong. Such pessimism about the future cost of clean energy led this study to show higher electricity bills resulting from the shift toward clean energy caused by the CPP. By comparison, the two studies that found large decreases in electricity bills were optimistic about either the costs of clean energy or the degree to which the CPP would increase the already-growing portfolios of utility-funded energy efficiency programs.
We show one example below, comparing the assumptions of each CPP study on the costs of wind energy to the range of empirical studies available at the time. Our paper provides many other examples.
WRI’s review concludes that expectations of large changes in electricity bills cannot be justified on the basis of these studies, because their results may reflect subjective modeling choices as opposed to the characteristics of the policy itself.
While other studies have claimed that the CPP would have large effects on electricity affordability, none of them provide sufficient underlying information for us to evaluate their assessments. For example, a study performed by Energy Ventures Analysis (EVA) and funded by the National Mining Association finds that CPP will raise electricity prices by 20 percent by 2030, but the study provides almost no detail about the assumptions underlying its analysis, and EVA did not respond to our request for further information. None of the studies that we looked at that show large increases in electricity bills draw on assumptions that stand up to independent scrutiny.
A Need for Independent Studies
As the next phase of this work, WRI will conduct its own modeling. Our objective is to better understand the economic impacts of climate policies, to provide transparent and impartial information to decision-makers, and to continue developing a template for independently evaluating the economic impact studies of future regulations.