Clean Air Act
The Obama Administration today took a major step toward reducing the carbon dioxide emissions that are impacting our climate. The Environmental Protection Agency (EPA) released its “Clean Power Plan,” which leverages existing authority in the Clean Air Act to propose carbon pollution standards for existing power plants, the largest single source of U.S. carbon emissions. The proposal would cut emissions in the power sector by 30 percent by 2030, based on 2005 levels. We reviewed the basics of the Clean Power Plan with four critical questions in mind:
1. Is the standard based on emission reductions outside the power plant fence line?
The short answer is “yes.” EPA cannot require states or power plant operators to take any specific measures, but it can set the emissions target stringent enough so that it would be challenging to achieve unless certain measures are taken. EPA is proposing state-specific targets based on the capacity of each state to leverage four “building blocks.” They are:
- Make fossil fuel power plants more efficient.
- Use low-emitting natural gas combined cycle plants more where excess capacity is available.
- Use more zero- and low-emitting power sources such as renewables and nuclear.
- Reduce electricity demand by using electricity more efficiently.
Although “outside-the-fence-line” measures are not specifically required under the proposal, states would be hard-pressed to meet their targets without using programs to reduce the demand for fossil electricity, by, for example, increasing energy efficiency and encouraging renewable energy.
Looking to Figure 1, EPA has chosen the System-level Option.
Figure 1: Scope of reduction requirements
On June 2, the Environmental Protection Agency (EPA) is expected to release its proposal to cut carbon dioxide (CO2) emissions from existing power plants. This proposal is a key element of President Obama’s Climate Action Plan, and will be critical to reducing U.S emissions of CO2, the most common greenhouse gas contributing to climate change.
The proposed rule, being developed under EPA’s authority under Section 111(d) of the Clean Air Act, could be groundbreaking for at least two reasons. First, it has the potential to drive major reductions in the highest emitting sector in the United States – the power sector – which is responsible for nearly 40 percent of U.S. carbon emissions. Second, EPA has indicated that the proposal will include a number of novel policy provisions to advance low-emitting generation and energy efficiency.
At C2ES, we’ll be looking for answers to four key questions as we read through EPA’s proposal. These questions are expanded upon in our new brief, Carbon Pollution Standards for Existing Power Plants: Key Challenges.
In a unanimous (8-0) decision, the U.S. Supreme Court ruled in AEP v Conn that the state and land trust plaintiffs could not invoke a federal common law public nuisance claim against the five largest electric power companies. The plaintiffs in the case were seeking controls on the carbon dioxide emissions from the utilities’ power plants. Building on their 2007 decision in Mass v EPA, the Court held that Congress in passing the Clean Air Act had authorized federal regulation of greenhouse gas emissions and in doing so had effectively “occupied the field” thereby negating any common law claims. In a decision noteworthy for its brevity and clarity, the Court stated:
We hold that the Clean Air Act and EPA actions it authorizes displace any federal common law right to seek abatement of carbon dioxide emissions from fossil-fuel fired plants. Massachusetts made plain that emissions of carbon dioxide qualify as air pollution subject to regulation under the Act. (page 10)
Throughout the beginning of 2011, the Regional Greenhouse Gas Initiative (RGGI) —the first mandatory carbon dioxide (CO2) cap-and-trade program in the United States—was successfully defended by state legislators in three states where attempts were made to remove those states from the program. In the second week of May, the states of Delaware and Maine defeated bills proposing withdrawal, while in New Hampshire, Senators did not pass the House’s version of a withdrawal bill. But on May 26, New Jersey Governor Chris Christie announced that his state will leave RGGI by the end of the year.
Participating RGGI states cap CO2 emissions from power plants (those with generation capacities of at least 25 megawatts) and auction most of the emissions allowances. (Each allowance lets a power plant emit one ton of CO2.) RGGI’s CO2 emission allowance auctions raised $789.2 million for the 10 participating Northeast and Mid-Atlantic states from 2008 to the end of 2010. Meanwhile, consumers on average saw their monthly utility bills increase by less than $1. As highlighted in a February RGGI report, this allowance auction revenue has benefited the 10 participating states via investments in clean energy technology and energy bill assistance. These investments are creating clean energy jobs, saving consumers money, and deploying technologies that reduce the environmental impact of power generation.
First there was the warning about a construction moratorium – all new major stationary sources would come to an immediate halt because of EPA’s new source review requirements for greenhouse gas emissions (GHGs). Soon after the alarm went out about the approaching regulatory “train wreck” that would result from a series of EPA rules impacting electric utilities. A large number of power plants would shut down, the reliability of our energy supply would be sacrificed, and consumers would face skyrocketing costs.
There was only one problem with these warnings – they were made before anybody knew what the actual regulations would require. Now that EPA has issued several of these rules, it is useful to revisit these doomsday scenarios and see if the reality of the proposals matches the rhetoric before the fact.
Congress is debating whether or not to limit EPA’s authority under the Clean Air Act (CAA), and many are wondering if these environmental regulations are creating a burden to our economy. EPA has released a report that answers that concern head-on, and the results are nothing short of astonishing.
This report takes a hard look at the actual costs and benefits of the regulations implemented under the Clean Air Act Amendments of 1990 (CAAA), from 1990 through 2020. The report finds that while CAAA regulations have indeed imposed costs on society, estimated to be $65 billion in 2020, the benefits from cleaner air in 2020 will total $2 trillion – 30 times higher than the estimated costs.
Steve Seidel, vice president for policy analysis, co-wrote this post.
With the failure of the Senate to act on climate change legislation, the focus of attention now shifts to possible regulatory actions by EPA. The Supreme Court in 2007 made it clear that greenhouse gases (GHGs) are pollutants under the existing Clean Air Act (CAA), and the overwhelming scientific evidence (spelled out in great detail in the endangerment finding) demonstrates that such pollutants represent possible harm to public health and welfare.
Opposition to EPA action rests in part on concerns that any regulations will be excessively costly and burdensome to households and U.S. manufacturers. While it is certainly true that regulating GHGs will result in costs, it is also important to look at whether the economic benefits from those regulations will be greater than the costs they impose. In other words, will societal costs of allowing global GHG emissions to continue unabated (costs that will come in the form of impacts from rising sea levels, increased extreme weather including heat waves and droughts, among others) be greater than the costs of regulating those emissions responsibly?
This basic regulatory framework – that regulatory costs should be less than the resulting benefits – is codified in OMB review of all major federal regulations by both Republican and Democratic Administrations, has historically been applied to all EPA regulations, and would certainly be applied to any future regulations of GHGs.
So what have been the costs and benefits of past EPA regulations under the CAA historically? Congress required EPA to undertake a retrospective assessment of the costs and benefits of regulations under this statute. The conclusion of this retrospective review is that the CAA resulted in total benefits that are around $37 trillion, while total costs were $0.874 trillion (in 2010 dollars) – an astounding 40 to 1 benefit to cost ratio!
EPA has also produced a prospective assessment of the costs and benefits of the CAA – this time for the time period of 1990 through 2010. In this review, EPA estimated that the most likely benefit to cost ratio of the CAA for this period is 4 to 1. While a very strong and positive value, the ratio is substantially lower than the estimated benefits for the first 20 years of the CAA.
This is not unexpected – early gains are usually greater, and more cost effective, because simple or cheap remedies are the first to be applied in response to regulatory requirements. As those requirements become more stringent, creating additional benefits becomes more costly (from an economics perspective this is described as moving up the marginal cost curve).
How credible is EPA’s assessment of its regulations? Alan Krupnick, formerly of the President’s Council of Economic Advisors, has testified before Congress about the credibility of EPA’s analyses: “Under the auspices of the agency’s Science Advisory Board, both studies were scrutinized throughout the decade-long preparation by at least three expert committees of outside economists, air quality modelers, epidemiologists, and other health experts.”
In addition to these EPA assessments, there have been a handful of quality external analyses of the costs and benefits of the CAA. The Office of Management and Budget (OMB) found that the “major rules” from EPA’s Office of Air resulted in total benefits between $145 and $218 billion annually, for the years between 1992 and 2002. This is compared to costs of between $22 and $25 billion over that same period. A study by researchers at MIT found total annual benefits rising from $50 billion in 1975 to $400 billion in 2000. This report accounts for the monetary benefits of avoided premature death differently than the EPA studies, and as a result reports lower values for the total benefits. A sum of the total discounted benefits yields a total benefit of $6.85 trillion from 1975 through 2000 – a figure still substantially greater than the EPA estimate for the costs of the regulations.
So how might this play out in terms of future regulations of GHGs? EPA’s first GHG regulations were standards set for light duty vehicles (which it coordinated with the efficiency standards set by NHTSA). These standards are expected to lead to net benefits of between $0.5 and 1.2 billion dollars (discounted back to present values using 7 percent and 3 percent discount rates, respectively) without even including a social cost of carbon. If a value is assigned to the avoided GHG emissions associated with this regulation, the net present benefits are even greater!
If there is a lesson that can be drawn from these previous regulatory efforts it is that while regulations do impose real costs, EPA’s actions under the CAA have consistently led to positive environmental and economic outcomes. By not regulating, we would have foregone these positive net benefits and incurred the social costs imposed by unabated pollution.
So the next time someone tells you that the costs of reducing air pollution are too high, ask them what would be the costs to society of not reducing those emissions.
Russell Meyer is the Senior Fellow for Economics and Policy. Steve Seidel is Vice President for Policy Analysis.
Manik Roy, vice president for federal government outreach, co-wrote this post.
By all indications, the climate bill is done for the year. A casualty of … well, you’ve been hearing the blamefest.
So what’s next?
Unfortunately, none of the problems we sought to fix with the climate bill have been solved by ignoring them.
Power companies and businesses still need to know what carbon emission requirements lie ahead of them before investing millions of dollars in new equipment – especially for carbon capture and sequestration, nuclear power, renewable energy, energy efficiency, and other low-carbon alternatives.
On Thursday, the Senate defeated Sen. Lisa Murkowski’s (R-AK) “disapproval resolution” intended to prevent the EPA from regulating greenhouse gas emissions under the existing Clean Air Act.
The vote sends a clear signal that the Senate must act now. The Senate must invest its time and energy over the next two months to find the common ground solutions required to pass meaningful clean energy and climate legislation. The key building blocks for a final bill already exist, and the Senate must seize this opportunity to create a safer, cleaner, more secure energy future.
A few things are clear from the vote:
- 53 Senators voted in support of EPA’s finding that greenhouse gas (GHG) emissions pose a danger to human health and environment, with many stating their preference for Congressional action but not wanting to unilaterally disarm EPA.
- Of the Senators voting for the resolution, at least 8 made statements saying that they believe we need to reduce GHG emissions. Among these were 5 Republican Senators.
- In total, at least 61 Senators, through their votes or statements today, expressed support for policy that would limit GHG emissions.
In addition, Sen. Murkowski and at least 17 of the Senators who voted for Sen. Murkowski’s resolution of disapproval framed their votes as intended to prevent EPA from regulating greenhouse gas emissions under the existing Clean Air Act or about the separation of powers, rather than as statements on climate science. Following are excerpts from Senate floor statements or from press releases following the vote that indicate the Senators’ willingness to work toward Senate action on a clean energy and climate bill.
Sen. Lindsay Graham (R-SC): What I propose is that the Congress, once we stop the EPA, create a rational way forward on energy policy that includes clean air and regulation of carbon. … Carbon is bad. Let's do something about it in a commonsense way. … If we can clean up the air in America, we would be doing the next generation and the world a great service. The key is, can you clean up the air and make it good business? I believe you can. Let's pursue both things: good business and clean air.
Sen. Ben Nelson (D-NE): Now, I have no doubt that carbon emissions should be reduced in the U.S. But not through excessively costly EPA regulations or a complicated cap and trade proposal that could spur speculation that enriches Wall Street, while not cleaning the air above Main Street. … In my view greenhouse gas emissions should be reduced through a comprehensive energy bill. One that promotes efficiency, innovation, new technology, and renewable energy such as wind and biofuels that can be produced in Nebraska's fields. An energy bill should help, not harm, Nebraska and the American economy as it cleans up the air.
Sen. Susan Collins (R-ME): Our country must develop reasonable policies to spur the creation of green energy jobs, lessen our dangerous dependence on foreign oil, and reduce greenhouse gas emissions. We face an international race to lead the world in alternative energy technologies, and we can win that race if Congress enacts legislation to put a price on carbon and thus encourage investment here in the United States.
Sen. Mark Pryor (D-AR): There is clear consensus within the scientific community that human activities will have a serious and costly impact on our environment unless we take meaningful steps to mitigate pollution from greenhouse gases. … Congress should act quickly, but thoughtfully, in developing comprehensive energy and climate policies that meet our nation’s needs. The costs of inaction or wrong action are too great for future generations.
Sen. Olympia Snowe (R-ME): [I]t is Congress – and not unelected bureaucrats – that should be responsible for developing environmental policies that integrate our nation’s economic well-being as an urgent priority along with the reduction of carbon emissions, and I do not accept that these are mutually exclusive goals. … I will continue to work with my congressional colleagues to achieve our shared goals of fostering a healthy economy while moving toward a clean-energy future by replacing EPA regulations with a system that protects Maine employers and reduces greenhouse gases by the level that science dictates.
Sen. Mary Landrieu (D-LA): I look forward to working with Democrats and Republicans to find a better, smarter way forward in the weeks ahead. Americans want and need energy solutions and more job creation, not overreach by regulators. That starts with real, public debate on climate change and energy challenges facing our nation.
Eileen Claussen is President
Through a recently signed Presidential Memorandum, Barack Obama is continuing the push to regulate greenhouse gas emissions from the transportation sector using its authorities under the Clean Air Act (CAA) and the Energy Independence and Security Act of 2007 (EISA). While the memorandum includes provisions for passenger cars, light-duty trucks, and support of an electric vehicle charging infrastructure, the most notable component involves vehicles that have eluded fuel efficiency regulators.
When it comes to GHG emissions and the transportation sector, the elephant in the room has been medium- and heavy-duty vehicles (freight trucks). The recently released memorandum will bring these vehicles under the regulatory umbrella and increase the likelihood that the transportation sector will contribute its share to economy-wide GHG emission reductions.