Last week, the U.S. Chamber's Institute for 21st Century Energy issued a comprehensive analysis of the costs associated with potential EPA regulations. Note that we used the word potential--it was even in the title--because it was impossible to know exactly what EPA was going to propose. The type of modeling that IHS did for our study takes months, and unfortunately we weren't privy to the decisions being made behind EPA's doors in terms of their emissions reduction targets. Therefore, we took the Obama Administration at their word and used their stated emissions reduction targets.
Some have now called into question the accuracy of our study because the Administration's rule appears to differ--though perhaps not as much as meets the eye--from what was actually proposed. In fact, a Washington Post "fact checker" declared that our study has "false notes"--apparently not because the actual content was wrong, but because it didn't predict what the Administration would release with complete accuracy. Interestingly, the same claim can be made about the Natural Resources Defense Council's pre-rule analysis, which made a similar assumption about emissions reductions targets.
What Assumptions Did the Chamber Make, and Why?
Our study aimed for an emissions reduction target of 42% by 2030. This assumption wasn't invented out of thin air, but rather was based on the very specific emissions reductions goals that the Obama Administration has made and repeated.
Let's go back to 2009 to examine that target. On November 25, 2009, the White House announced that President Obama would attend Copenhagen climate talks. The White House wrote:
"the President is prepared to put on the table a U.S. emissions reduction target in the range of 17% below 2005 levels in 2020 and ultimately in line with final U.S. energy and climate legislation. In light of the President's goal to reduce emissions 83% by 2050, the expected pathway set forth in this pending legislation would entail a 30% reduction below 2005 levels in 2025 and a 42% reduction below 2005 in 2030."
This target was reiterated a few weeks later in Copenhagen by Todd Stern, the U.S. chief climate negotiator:
"We have - as I'm sure you're all aware - articulated a U.S. target within the last couple weeks of 17% below 2005 levels by 2020. And that ramps up - that's part of an overall legislative package that goes out to 2050. Just to give you an example, by 2025 the reduction would be about 30% below 2005, and 42% by 2030."
Since that time, this target has appeared in print numerous times and was the basis for failed legislation in Congress. Most recently, Energy Secretary Moniz and EPA Administrator McCarthy held a "Google Hangout" on May 19, in which Secretary Moniz repeated the climate goal of "17% by 2020" and "80% by mid-century"--the exact same pathway referenced by Todd Stern and the White House that includes the 42% reduction by 2030.
So, there was no reason to think that the Administration was going to suddenly abandon their emissions reductions targets.
It is important (and interesting) to note that even with flexible compliance options, our study could not actually achieve a 42% reduction in emissions. We ended up at 40%. The only way to achieve this lower target was by imposing carbon capture and sequestration on new natural gas plants in 2022 via the separate New Source Performance Standard process, which has significant cost. EPA took issue with our analysis, but provided no rebuttal as to how the 42% (or 40%) target could be met without CCS on natural gas, and even the proposed rule leaves the door open to CCS on gas by asking for public comment on whether "the use of CCS should be allowed as a compliance option to help meet the emission performance level required under a CAA section 111(d) state plan" for new natural gas combined cycle plants.
What Are EPA's Actual Targets?
The overall national emissions reduction target is 30% by 2030--a significant departure from the previous commitment. But there are huge caveats to that number.
First, EPA's method will rely on state by state reductions in emissions. Each state will have a different target. It is not immediately clear what those targets are for each state, but it certainly appears that the reduction targets for many states will be well above 30%, and many appear to exceed the 40% that we modeled. Like many others, we're working overtime to try to understand the exact numbers, and what they mean for costs.
Second, EPA has also left itself a great deal of wiggle room to come back next year--after the public comment period--and propose new, stricter rules. Administrator McCarthy herself has said she regrets that 30 percent was highlighted as a target and other Administration officials have reportedly said in briefings that the final regulation could have stricter targets. So the 30% reduction in emissions could easily become 40% by the time this rule making process is through.
Where Does that Leave the Chamber's Study?
Our study provides a benchmark for what a 40% reduction in emissions would look like. But because each state has to meet a different standard, and many of those targets will exceed the Administration's 30% national average target, our numbers could still end up being a close approximation of the true costs of the proposed rule. Our study showed a disproportionate geographic impact to states in the South Atlantic, East North Central, and West South Central census regions. Regardless of the national target, those same states will still have large compliance costs, which will result in increased electricity prices, job losses, and reduced economic productivity. Some states may even experience greater adverse impacts than we identified in our study.
Of course, our study also remains a precise indicator of what will happen if the Administration proposes a stricter national standard around 40% next year--as environmental groups are already pushing them to do.
So the bottom line is that the jury is still out. In either case, our study is still accurate based on our stated assumptions--and it might end up being a more accurate predictor of the final rule and the actual compliance costs than the "fact checkers" realize.