Download recent state-specific electricity costs and benefits of the EPA rule (.xls)
Today’s House Subcommittee on Energy and Power meeting could more closely resemble a kangaroo court than real government oversight.
Here’s why. The subcommittee plans a hearing misleadingly titled “What EPA’s Utility MACT Rule Will Cost U.S. Consumers.” But the Republican majority is playing with words and the health of our children. Its witnesses from industry and their consulting firms suggest that the Republican majority has little interest in learning about the tens of billions of dollars of economic gains due to health benefits derived by the slashing millions of pounds of mercury, lead, arsenic, and other toxic air pollution from power plants that the rule would generate. And the subcommittee majority will pay little heed to the Environmental Protection Agency’s analysis that found the rules will only lead to modest electricity price increases, which are relatively small compared to the electricity price increases experienced over the past decade.
In addition, the majority will likely ignore the independent analysis and data that suggest that retrofitting power plants to cut toxic pollution will cost less than predicted by industry-funded studies. Instead, witnesses are likely to repeat findings from utility-and-coal-industry-financed reports that have already been debunked due to their flawed analysis.
Below we offer information on how the rules will affect U.S. ratepayers as well as the benefits that they will provide to all Americans.
Toxic air-pollution reductions yield jobs and billions of dollars in health benefits
To begin with, the final rules to reduce the mercury, lead, arsenic, and other toxic pollutants from coal-fired power plants will have huge public-health benefits. Slashing mercury and other contaminants will save 11,000 lives annually and prevent more than 100,000 asthma and heart attacks year. These health improvements will provide economic benefits of up to $90 billion every year. (see attached chart for state benefits from air toxics reductions)
The cleanup of toxic air pollution by utilities will also create jobs. These funds will go to install pollution-control equipment such as scrubbers. Mike Morris, the chief executive of American Electric Power, which generates two-thirds of its electricity from coal plants, noted that:
We have to hire plumbers, electricians, painters, folks who do that kind of work when you retrofit a plant. Jobs are created in the process—no question about that.
According to a University of Massachusetts study, such investments could create 325,000 direct jobs over five years in conjunction with the sulfur and nitrogen-oxide reductions under the Cross-State Air-Pollution rules. The latter rule will reduce smog, acid rain, and particle pollution that pollutes states downwind from the emitting power plants.
Dr. Josh Bivens, acting research and policy director at the Economic Policy Institute, also concluded that the air-toxics reduction rule would create jobs. He determined that “the final toxics rule is forecast to have a modest, positive net impact on overall employment.” Bivens estimated that the rules would create a net increase of 55,000 direct jobs by 2015.
Pollution reductions will have small impact on electricity rates
Companies that retrofit their coal-fired power plants to reduce mercury and other toxic pollutants will likely seek to increase their rates to reflect these new costs. But it’s important to note that such rate increases will actually correct a market failure. Currently, coal plants and their consumers are getting a free ride because the cost of electricity from these plants is artificially low—it does not reflect the health harms and other costs from their emissions. Their pollution exacts a tremendous economic toll from premature deaths, damage to children’s cognitive capacity, asthma attacks, and other serious ailments.
As mentioned above the estimated cost of this pollution is $90 billion annually, and it’s borne by children, seniors, and other vulnerable people who breathe mercury and other toxic air pollution. Requiring these polluting plants to slash their harmful emissions will require power companies to internalize the cost of this pollution, which will likely lead to some electricity price hikes.
Even so, these electricity price increases could be relatively small according to EPA’s Regulatory Impact Analysis for the Final Mercury and Air Toxics Standards:
EPA’s analysis projects a near-term increase in the average retail electricity price of 3.1% in 2015 falling to 2% by 2020 under the final rule in the contiguous United States.
Even the most affected places of the southern plains, upper midwest, and eastern coal belt will only see a modest average rise in electricity rates by 2020 due to the air-toxics rule. (The table below is an excerpt from EPA’s Regulatory Impact Analysis. For the price impact of all contiguous regions go to p. 3-24. For a map of states in each EPA Price Model region go to p. 3-25.)
To put these price increases in perspective, the Energy Information Administration, or EIA, estimates that the average U.S. electricity cost increased by 14 percent between 2000 and 2010. (see attached spread sheet)
A major reason for projected electricity prices to grow much more slowly in the coming decade than they did in the previous decade is due to changing fuel prices. EIA’s Annual Energy Outlook 2012 Early Review notes:
Electricity prices tend to reflect trends in fuel prices—particularly natural gas prices—because in much of the country natural gas fired plants often set wholesale power prices.
Natural gas prices are at a historic low and are likely to remain that way for some time due to abundant domestic gas production.
Opponents overestimate costs
Despite these projections some states believe that they will face significant rate increases. For instance, a study prepared for the Indiana Utility Regulatory Commission predicts that new rules will increase electricity prices by 14 percent by 2020. This increase, however, is less than the 17 percent rate increase Indiana experienced from 2000-2010—an era with unfettered pollution. (see attached spreadsheet)
There are also legitimate questions over whether this study accurately predicts Indiana’s electricity rates in 2020. The estimate is based on the implementation of four power-plant-related rules: reduction of acid rain, smog, and particulate pollution that travels between states; cuts in mercury and air toxic pollution; changes to power plant water intake rules under the Clean Water Act; and disposal rules for toxic coal ash to prevent spills. EPA has not yet finalized the water and toxic ash rules used in the Indiana analysis, and the study’s authors acknowledge that “considerable uncertainty remains regarding the details of these rules.”
In addition, ratepayers are responsible to pay for the installation of pollution-reduction equipment at the power plants on an after-the-fact basis. As noted below, the initial cost estimates could be too high, and may not actually occur at all. The subsequent necessary rate increase would then be lower than the projected increase. Estimates such as the Indiana prediction thus may make for newspaper headlines, but ratepayers will only pay for expenses that are actually incurred, which may be far less.
Importantly, the prediction of electricity price increases also “does not address the benefits of reduced emissions” according to the Indiana analysis. Indiana will receive health benefits of at least $2.4 billion in 2016 due to saving 290 lives as well the reduction of other harms to human health. The nation will experience $90 billion in benefits annually, due in part to 11,000 fewer air-pollution-related deaths annually. (see attached chart for all state electricity rates and benefits from pollution reductions)
Some hearing witnesses may invoke studies by the National Economic Research Associates, or NERA, that purport to demonstrate that we cannot afford to protect children, seniors, and others from mercury and other toxic air pollutants. Dr. Laurie T. Johnson, chief economist at the Natural Resources Defense Council, or NRDC, conducted thorough reviews of NERA’s studies that were paid for by big utilities and coal companies. After a detailed review of one such NERA study, Johnson concluded:
The report makes assumptions that artificially inflate costs, and displays a level of (non)transparency so egregious it would never pass a peer-review process.
Against exaggerated cost estimates, NERA ignores sizable benefits of the regulations, including preventing tens of thousands of premature deaths, nonfatal heart attacks, hospitalizations and emergency room visits, almost a million cases of aggravated asthma and other respiratory ailments, and millions of days of missed work or school due to illness, per year.
Estimates of pollution-reduction costs are typically too high
Projections of future price increases due to pollution-reduction costs are very difficult to predict, and nearly always overestimate future costs. This is because such studies base their cost assumptions on current cleanup technologies and practices—they do not account for the vast potential for innovation once binding reductions and deadlines are set.
Consider that during the debate over the Clean Air Act of 1990 numerous cost studies predicted large electricity rate increases due to reductions in power plant pollution to attack acid rain. In 1989 the EPA calculated that the expected annual compliance cost of an acid rain program “was expected to be $2.7 billion to $4.0 billion.” Yet an EPA analysis a decade later determined that the actual cost of cutting acid rain pollution by 40 percent was substantially lower—“$1 to $2 billion per year, just one quarter of original EPA estimates.”
Energy efficiency can reduce pollution-reduction expenditures
In addition, ideas to cost-effectively reduce power plant pollution are already emerging, such as employment of energy efficiency. These can help bring down family’s and businesses’ electricity bills by reducing consumption.
The American Council for an Energy Efficient Economy just released an analysis that promotes this solution. The report, “Energy Efficiency: The Slip Switch to a New Track Toward Compliance with Federal Air Regulations,” determined that an analysis of the Mercury and Air Toxics Standard shows:
…actions to encourage energy efficiency significantly decrease demand and reliability concerns (EPA 2011a). The ‘Energy Efficiency’ case also showed that if energy-efficiency policies are implemented along with the MATS, electricity bills would fall because customers will be consuming less electricity.
The opportunities to use energy efficiency as a mechanism to comply with the suite of federal air regulations provides a chance for PUCs [Public Utility Commissions] to safeguard system reliability and curb compliance costs.
Be warned. At the hearing today, and in the coming months, highly polluting utilities, their political allies, and state public service and utility commissions will frequently claim that we cannot afford the new safeguards from mercury, lead, arsenic, and other toxic air pollution from coal-fired power plants. These claims will likely ignore the billions of dollars in health benefits, the creation of thousands of jobs, the projection that utility prices will increase less over the next decade than they did during the previous one, and the exaggerated claims of the cost of public health protection.
For our children, parents, and others’ sake, it is essential that government officials don’t buy these arguments.
Download recent state-specific electricity costs and benefits of the EPA rule (.xls)
Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy and Zachary Rybarczyk is an intern with the Energy team at American Progress.