Defending the New Carbon Plan, Incoming Fire from Both Sides

June 3, 2014

Talking Points Memo:

First, EPA apparently chose the utilities’ preferred baseline year, 2005 against which to measure a 30 percent emissions cut of existing power plant emissions by 2030. Indeed the Wall Street Journal argued several days ago that all of the action was in the baseline year chosen. Utilities wanted 2005 because emissions were especially high in the years immediately preceding the recession so that a 30 percent cut from 2005 levels would be far easier to achieve than a 30 percent cut from 2012. Not only did slower economic growth from 2008-2012 result in lower emissions but so did a dramatic drop in natural gas prices, leading to a big shift in electricity generated from natural gas rather than coal. Natural gas emits only about half the emissions as coal when combusted. The 2005 base year is a big victory for industry. In fact, the total reductions the new proposed rules will achieve are actually lower than what the President committed to in international talks in Copenhagen in 2009. For this reason, Grist isreportingthat the rules will fall short of what the environmental community wanted.

Second, several of the reduction measures allowed under the proposed rules are remarkably cost-effective. Reducing emissions by installing energy efficiency measures, for example, is significantly cheaper than installing plant by plant control technologies. Similarly, some renewable energy sources, including wind and solar, are quickly approaching the cost of conventional fuels. And measures to reduce demand through innovations like price incentives and time-of-day pricing can, again, be extraordinarily cost-effective (Joel Eisen explains a recent demand response case in detail here).

Third, the proposed power plant rules will apparently allow states to opt into state cap-and-trade programs. The idea behind cap-and-trade, explained here, is to allow emitters to find the cheapest mechanisms to reduce greenhouse gas emissions through market mechanisms rather than dictating particular control technologies. As I noted in a post earlier today, utility executives have offered praise for this component of the rules, saying that “by trading on carbon credits, we’ll be able to achieve significantly more cuts at a lower cost,” and “we view cap and trade as having a lot of benefits.”

So tomorrow, if you read that the U.S. Chamber of Commerce says that the proposed new rules will cost the economy $50 billion to implement, be very, very skeptical. Resources for the Future has found significant errors in that study and NRDC has produced a study showing that the rules will actually save consumers money and create jobs in energy efficiency and renewable energy installations. The Administration has worked hard to accommodate utility concerns and has produced a set of proposed rules that go a long way toward producing affordable, cost-effective cuts in the emissions that are heating the globe.

Charles Kaumonoff for the Carbon Tax Center:

 Yet peel back the numbers and the plan turns out to be precious little.

Relative to 2030 emissions projected from current trends, the drop in that year’s U.S. CO2 emissions sought by the President is a painfully modest 355 million tonnes (metric tons). That equates to just 7% of total actual emissions from all sources last year (5313 million tonnes).

To be sure, the business-as-usual (no action) trajectory producing that 355 million tonne figure is mine, not the administration’s. (At the time I wrote this the White House hadn’t translated its percentage target into metric tons of CO2.) I derive it below, and it’s subject to argument. What’s not debatable is that power plants are the low-hanging fruit in cutting CO2. That’s because electricity-sector CO2 emissions can be cut relatively easily not just via the demand side (through energy efficiency and conservation) but also on the supply side (by converting from coal to gas, and from coaland gas to renewables). Indeed, as of last year, demand and supply steps by industry, household and government had already wrought a 15% reduction in U.S. power plant emissions from the president’s 2005 base year (a drop of 361 million tonnes from 2414 million). By calling for only a second round of 15% cuts (355 million tonnes) from 2014 to 2030, the Obama plan in effect takes twice as long (16 years) to cut as much carbon pollution as the country just did (in 8 years, from 2005 to 2013).

Here’s another way to see how undersized a CO2 cut 355 million tonnes is: in a different political universe, one in which a carbon tax could be made the economic engine for cutting CO2, that same reduction (355 million tonnes) could be effectuated through almost the tiniest carbon tax imaginable: a carbon pollution fee starting at $2.15 per ton of CO2 and rising by $2.15/ton each year, and appliedonly to the electricity sector (i.e., ignoring the other 61% of U.S. CO2 that comes from cars, trucks, planes, refineries, factories, heating, mining, etc., as the Obama plan does). Equivalently, aneconomy-wide carbon tax of just a buck and a quarter per ton of CO2 (rising by the same $1.25 each year) would also do the CO2-cutting job of the Obama plan. (These tax rates are derivable with my newly updated carbon tax spreadsheet model, which you can download here.)

So when the NY Times calls the Obama plan one of the strongest U.S. government actions ever taken on climate, that’s a sign of how low the bar has been set by our country’s history of inaction.

What to do? Two things.

First, lean on the environmental lobby to stop caving to the White House. We need prominent advocates like NRDC and EDF to insist on more. Yes, it can be difficult to talk tough to the President when even halting steps like today’s are viciously attacked by the dirty-energy lobby. But heaping praise on a policy to cut emissions just 7% over 16 years doesn’t square with treating global warming like the planetary emergency it is.

Second, get behind a carbon tax — a real one, like the $12.50/tonneCO2 tax (starting at that rate and rising annually at the same rate) that Rep. Jim McDermott (D-WA) is readying for introduction this week. Our modeling indicates that in its tenth year, the McDermott carbon tax (which equates to $11.34 per conventional “short” ton of CO2), would reduce U.S. CO2 emissions by a third from 2005 levels, and by nearly 30% from future emissions without the tax. (By 2030, the reductions would be 41% from 2005 and 37% from business-as-usual.) The local chapter of the Citizens Climate Lobby is an excellent vehicle for political action for this or other robust carbon taxes.

Like you, we know full well that a measure like McDermott’s can’t and won’t make it through this Congress, and perhaps the next, even though it could be folded into comprehensive tax reform, spurring economic growth by shifting tax burdens off work and investment and onto climate pollution. But seven percent won’t do. A robust carbon tax like McDermott’s is more essential than ever.

Al Jazeera:

Federal plans for new carbon emission cuts — reportedly by up to 30 percent from 2005 levels — could spark a rapid expansion in the renewables sector, environmental groups predicted Sunday ahead of the unveiling of a new government blueprint on clean energy.

“If you’re working in the solar or wind industry, you should feel very happy right now. Those are the industries growing faster than the rest of economy,” Mike Brune, executive director of the Sierra Club, said. “It’s clear that those are going to be the industries to work in, invest in and watch. They’re about to explode in terms of growth.”

The comments came on the eve of an announcement Monday in which Environmental Protection Agency chief Gina McCarthy is expected to outline new limits on existing power plants. In anticipation of the new guidelines, President Barack Obama said Saturday that it was time for “higher standards to cut pollution” and that the new rules would “cut down on the carbon pollution, smog and soot that threatens the health of the most vulnerable Americans, including children and the elderly.”

The new rules could bolster an industry that has already benefited from a flow of new cash and new demand.

Warren Buffett, the billionaire owner of Iowa utility MidAmerican, announced a $1.9 billion investment in wind farms earlier this month. MidAmerican plans to generate almost half its electricity from wind by 2017.

In January a Minnesota judge, tasked by the state’s public utilities commission to look into the pricing of electricity for consumers, heldthat the utility Xcel Energy should invest in the solar energy developer Geronimo Energy rather than in natural gas generators because that choice would be the better economical and environmental deal for the state.

Every four minutes, an American home or business goes solar, Obama said earlier this month in a speech on the U.S. transition to clean energy. Solar panels were installed on the White House the same day.

The standards that Obama is set to unveil on Monday, including details of the new carbon pollution standards for power plants as part of a new set of EPA guidelines to address climate change, will push renewables’ progress even further — replacing dirty fuels, experts believe.





18 Responses to “Defending the New Carbon Plan, Incoming Fire from Both Sides”

  1. Good to have President Obama focusing on climate, HOWEVER the upshot mostly seems to be more, more, more fracking.
    At least that’s what energy execs are seeing. From the NYT: “It’s clear the increased use of natural gas in the existing power sector could create the opportunity for the U.S. to further capitalize on abundant North American natural gas supplies, furthering an energy renaissance,” Marvin Odum, Shell Oil’s president, said in a statement.
    and: Chris Faulkner, chief executive for Breitling Energy, predicted that more gas generation plants would be needed to displace coal and meet new demand from population growth and that gas prices would rise perhaps as much as 25 percent. … A rebound in prices, Mr. Faulkner said, will most likely spur more drilling in several shale gas fields that are now nearly moribund, boosting supplies and averting a big price spike.

  2. The action is largely symbolic. It signals a turn. Businesses will be less likely to invest in the direction of increasing carbon because they know it is now more risky. The tide is slowly turning. This opens the door to more serious action in international carbon emission agreements. And yes, the pressure should be increased for more action. More pressure to repeal FF subsidies. Make subsidies for renewables permanent. I agree its more of the same from the administration. A market based approach friendly to the industries opposing it. Health care repeated? Not cool. Face it. Its not an environmentalist administration.

  3. jimbills Says:

    It’s been a pattern with the Obama Administration to enact laws in which the costs and the full effect won’t take place until 10-20 years after President Obama has left office. While I take ANYTHING positive as a good thing, I also think this is really chicken sheet politics. The worst part is that a following administration could easily overturn most of it. This only time in U.S. history where Democrats have been in charge of the White House for over 12 consecutive years was Roosevelt-Truman, which should really be considered a fluke. Additionally, it took Obama into the 6th year of an 8 year Presidency to do this much.

    Politically, a move like this also risks any further action, as the other side can say, “Well, you’ve already done this, we’re not budging any further.” Would a move like this further dampen calls for a carbon tax?

    I’m also concerned that this is the precursor to a Keystone approval. I think his team will think they’ve appeased the environmentalists, and now they can do what they’ve been pressured so heavily to do. After it’s all said and done, a pipeline can’t be as easily repealed as a Presidential decree.

    But, reducing a percentage of coal use is better than doing absolutely nothing.

    • andrewfez Says:

      Aren’t a lot of those coal companies sitting on low and vulnerable profit margins anyway? A significant reduction in demand could take several offline, reducing competition, augmenting product price, and causing the supportive industries (folks that make extraction equipment exclusively for coal) to erode, further increasing the cost of extraction. Economy of scale in reverse.

      • jimbills Says:

        The thing that makes things difficult to conceive is that a loss of demand in one area can be offset by demand in another area, and coal is now a global story instead of just a national one.

        Here is a story about coal’s future:

        Time will tell. Obviously, your scenario is ideal, but there’s a action-reaction thing going on with supply and demand that tends to optimize commodity usage. Assuming a stable economy and a rough status quo in regulations and subsidies, I’d guess we’re more likely to have much of our coal resource used in some way (here, China, elsewhere, in other ways like coal-to-liquids, etc.) than not.

        Our current phaseout of coal also completely relies on low NG prices, at least until the alternatives scale up much more rapidly. I really think NG is due for a near-term history of spikes and falls. There will be HEAVY pressure to repeal the EPA mandates if NG prices are high and coal prices are low.

        If renewables prices lower to well below fossil carbon prices and if they manage the storage and peak usage issues in as inexpensive a way as fossil carbon prices, which so far I tend to be skeptical about, then we could potentially have a real multi-decade phaseout. It wouldn’t happen on the time scales hoped for, though, just because replacement prices are naturally much more expensive than maintenance prices in the short-term. If your electricity bill doubles, you have the option of buying a $20K solar array (and possibly buying a new home to place that array), but most people will just grin and bear the increased temporary cost for a while. The same would apply on the macro level – industries, states, and so on.

        • andrewfez Says:

          Weren’t the German solar kits like $8K for a 4kW system?

          I bet you could give every American (man, woman and child) a 3000 cycle 24kWh capacity battery for the cost of the Iraq War. Or if you wanted 30% emissions to go away, 1/3 of the cost of the Iraq War. Or if you did it over 5 years 1/15th of the cost per year. And i bet if there was a guarantee every man, woman, and child were to get a battery the economy of scale would eat into that price even further.

          Incidentally in 1990 the cost of treating diabetes was 4.4 (or 44; can’t remember) billion dollars. By 2025 the cost will have risen to 300 billion dollars, and if you factor in costs of missed work, &c., we’re talking 500 billion. Almost the cost of the current defense budget will be going to treat diabetes by 2025. Further, doctors have a problem: people don’t like to take medicine for their diabetes. You can give a poor person free Medicaid medication for diabetes and its nebulous morbidities, equivalent to 5 to $10K per year, and they won’t take it (or they’ll just take it every other day or here and there). They know they’ll live longer and have a better long term quality of life but in the short term they still won’t take it. This adds billions to the cost of healthcare.

          Welp, I had a point but I’m too tired to pay it out properly so I’ll just hit send – ha, ha!

        • Our phase out of coal does not completely rely on gas. Part of it depends on wind and the PTC.

    • rayduray Says:


      I completely agree with your assessment. Welcome to the world of the empty gesture as political kabuki for the terminally naive.

      I find America to be increasingly ironic. The last time I recall actual leadership from the White House on a pressing environmental issue was when the doddering, demented Ronald Reagan, a man liberals love to hate, actually got out the way and let the White House help lead on the Montreal Protocol eliminating the threat of CFCs to the ozone layer.

  4. It’s not enough, but we have to start somewhere.

    • rayduray Says:

      Re: “It’s not enough, but we have to start somewhere.


      I’ve been watching this debate since the first Clean Air Act passed in 1970. We are not at the start, we are four decades into this debate. Of course Monday’s announcement is not enough. And that was the point of this exercise. The chasm between Obama’s rhetoric and his actions grows ever wider.

      What will eventually do in the fossil fuel industry will be the mere economics of the game. Americans have no will to do the morally correct thing or “save the planet” or give a darn about future generations. But if they can get something for less, then we’ve got a winner. And solar is finally coming into range to compete with coal and natural gas. As has been the case with industrial scale wind generation for several years now.

      Just think cheap and you will understand America perfectly well. 🙂

  5. rayduray Says:

    For the terminally pollyannish, this is an antidote I highly recommend:

    Quote: “WASHINGTON—Announcing one of the broadest reforms to the nation’s energy policy in decades, the Environmental Protection Agency introduced sweeping new regulations Monday that will require all power plants to find 30 percent more loopholes by the year 2030. “By setting this strict regulatory standard, we are ensuring that the operators of fossil-fuel power plants take proactive steps to uncover and exploit even more technicalities and exemptions in the federal code in the coming decades,” said EPA administrator Gina McCarthy, who pointed to strict loophole quotas that will force electrical utilities to pursue more efficient ways of bypassing rules,….”

    I like the way comedienne Lily Tomlin put it a few years ago: No matter how cynical I get, it’s hard to keep up.”

  6. Gingerbaker Says:

    What a bunch of cynics you all are! Please realize that this legislation is NOT just feel-good theater – it will save actual lives.

    By year 2200, instead of 6, 247, 480, 333 people dying from global warming, we can shave at least 300 – 500 people off of that figure. You can’t put a price on the value of human lives, gentlemen.

  7. rayduray Says:

    Re: “You can’t put a price on the value of human lives, gentlemen.”

    500 lives by 2200? Sign me up for that plan!

  8. Pay attention to what matters. Sure measured results today in the real world matter. But don’t let cynicism blind you to the significance of symbolism. It’s the bell weather of change. America has lacked leadership on energy for a long time and ignored the emergence of Germany in that role. And Germany’s leap of faith has yielded great bounty. No sooner does the US announce carbon restrictions, China announces theirs a day later.
    I am saying, yes the damage is real. And the more there is, the greater the response. Limits to growth have consequences. What we don’t know is how much the choices will be made like the ant or the grasshopper. So far it’s the grasshopper.
    It’s choice, not technology that determines our fate.

  9. […] 2014/06/03: PSinclair: Defending the New Carbon Plan, Incoming Fire from Both Sides […]

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