Economists Debunk Media Fearmongering About New EPA Rule


After the EPA proposed regulations on greenhouse gas emissions from power plants, several conservative media outlets claimed that the new rule would increase electricity prices for consumers by prohibiting the construction of coal plants without carbon dioxide controls. But economists and other analysts say that because low natural gas prices are already suppressing coal-plant growth, the rule will not significantly affect electricity rates.

Analysts Say New EPA Rule Will Have Little To No Impact On Electricity Prices

EPA "Does Not Anticipate Any Notable Impacts On The Price Of Electricity." The Environmental Protection Agency's Regulatory Impact Analysis of its proposed rule limiting greenhouse gas emissions from new power plants states that "Under a wide range of electricity market conditions - including EPA's baseline scenario as well as multiple sensitivity analyses - EPA projects that the industry will choose to construct new units that already meet these standards, regardless of this proposal." According to the analysis, "the Agency does not anticipate any notable impacts on the price of electricity or energy supplies." [Environmental Protection Agency, 3/27/12]

Brookings Economist: "EPA Rule Will Have No Significant Effect On Electricity Prices." Syracuse University economics professor and Brookings Institute Senior Fellow Peter Wilcoxen said that "the EPA rule will have no significant effect on electricity prices":

The idea that the new regulations will shut down the coal industry is nonsense. The new rules only bear on new power plants (and exempt those already in the planning stages), so existing coal-fired power plants are unaffected and can continue burning coal.

One might argue that the ruling will limit the *growth* of the coal sector but that's not correct either: coal's growth would be very limited anyway due to the low cost of natural gas and the very high capital cost of new coal plants. To put it simply: the life-cycle costs of coal-fired power are considerably higher than gas-fired power. This is not a theoretical matter: over the last decade, the electric power sector has responded by adding more than about 200 gigawatts of gas-fired capacity and about 2 gigawatts of coal. The US now has considerably more gas-fired capacity than coal-fired capacity and low gas prices will accelerate that trend even without the EPA decision.

Finally, because it only rules out an expensive option that wouldn't have been used anyway, the EPA rule will have no significant effect on electricity prices. [Email to Media Matters, 4/2/12]

Harvard's Robert Stavins: Given Low Natural Gas Prices, New Coal Regulation "Will Have Absolutely No Effect Whatsoever" On Electricity Prices. Professor Robert Stavins, Director of Harvard's Environmental Economics Program and a proponent of more market-based approaches to greenhouse gas regulations, explained that as long as natural gas prices remain low, there will be no new coal plants under construction. Therefore, EPA regulations on new plants will have "absolutely no effect whatsoever" on the price of electricity. He also noted that under these conditions, the new rule will have no environmental benefits. [Phone conversation with Media Matters, 4/2/12]

Bipartisan Policy Center: Rule Will Have "Very Little, If Any, Impact" On Electricity Rates. Jennifer Macedonia of the Bipartisan Policy Center wrote:

The rule is neither expected to reduce huge amounts of carbon emissions, nor will it kill a swath of power plants. In fact, the proposed regulation will have very little, if any, impact on actual power plants, jobs, electricity rates, or pollution. Still, it represents an historic step in the debate over actions to curb climate change and in the long term future of coal-fired electricity generation. [Bipartisan Policy Center, 3/30/12]

Rule Applies Only To New Coal Plants, Which Few Wanted To Build Anyway

Major Coal-Powered Utility Said New EPA Rule "Won't Have Much Of An Impact" On Business. American Electric Power, one of the largest U.S. utilities, told the National Journal that the new EPA rule "doesn't cause immediate concern" for the company:

Even one of the nation's most coal-reliant utilities, Ohio-based American Electric Power--which has come out in fierce opposition to many other Obama EPA rules--says climate-change rules for new plants probably won't hurt the company's bottom line.

"We don't have any plans to build new coal plants. So the rules won't have much of an impact," said Melissa McHenry, a spokeswoman for the company. "Any additional generational plants we'd build for the next generation will be natural gas. It will shape sources for new generation. But in the near term, the impact will not be as great. It impacts the ability to expand the use of coal for electricity, but it doesn't cause immediate concern for us." [National Journal, 3/26/12]

Duke Energy: EPA Rule "Means Nothing To Us." reported:

Duke Energy (NYSE: DUK) has two new coal plants -- not subject to the EPA emissions cap -- slated to come on line at the end of this year, along with two new natural-gas plants. The company plans to spend $7 billion on the four plants, which will result in rate increases for its customers in the coming months.

Still, Duke, which has utilities that serve North Carolina, South Carolina, Indiana, Kentucky and Ohio, says it has no plans for new coal projects beyond the two plants already in the works. Tom Williams, director of external relations for Duke, added that the company will look at natural gas, nuclear energy and upgrades to existing coal plants instead.

"This proposal means nothing to us," he said. "Our carbon profile is going down. We're shutting down 3,800 megawatts of coal and [the new plants] we're bringing on will replace that with lower carbon emissions," Williams said. [, 3/27/12]

The Economist: "New Rules Will Only Formalize A Shift That Has Already Been Under Way." From a March 31 article by The Economist:

Lobbyists for the coal industry immediately declared that the Obama administration was "driving up energy prices and destroying jobs". In fact, low gas prices, along with sluggish demand for electricity in the aftermath of the recession, have kept power prices subdued (petrol prices are another matter). For some time now utilities, faced with falling gas prices and the prospect of stricter environmental regulation, have been favouring gas over coal anyway. So the new rules will only formalise a shift that had already been under way, with little immediate economic impact. [The Economist, 3/31/12]

But Conservative Media Still Claim That Electricity Costs Will "Skyrocket"

OC Register: EPA Rule Will Lead To "Dramatic Increases In Electricity Prices." From an April 2 Orange County Register editorial:

Carbon dioxide is a trace gas necessary for life, not a pollutant. Its emissions have scant, if any, relationship to global temperatures, which have been flat for a dozen years even as CO2 levels dramatically increased.

What the EPA diktat is certain to accomplish, however, is dramatic increases in electricity prices and the devastation of coal-generated power industry, which provides almost half of U.S. electricity for industry and consumers. [OC Register, 4/2/12]

IBD: Carbon Rule Is "Sure To Make Energy A Lot More Expensive." From a March 27 Investor's Business Daily editorial:

The Obama administration is pushing the first rules ever to cut carbon dioxide emissions in new U.S. power plants. It's a move that's sure to make energy a lot more expensive for everyone. [Investor's Business Daily, 3/27/11]

Wall Street Journal: EPA Wants To "Drive Up The Price Of Electricity." From a March 29 column by Pete Du Pont:

Mr. Obama's Environmental Protection Agency wants to increase regulation of coal-fueled electricity plants, which produce almost half of our electricity, so as to drive up the price of electricity and force plants to close. [Wall Street Journal, 3/29/12]

Mike Huckabee: EPA Rule Will "Bankrupt Families." On Fox Business' The Willis Report, Mike Huckabee said of the rule:

HUCKABEE: But I think what the president said, we want to bankrupt them. You know who he's going to bankrupt? He's going to bankrupt families. Moms and dads and two-kid households. He's going to bankrupt single moms. He is going to bankrupt college students. Because when energy is increasingly expensive it is not just the price of heating your home. It's the price of reaching for a loaf of bread or a gallon of milk because it's going to cost more to get it to your house and cost more to take care of your house. That's why I don't think this president understands - he champions himself as the, you know the guy that loves the little guy. He is killing the little guy with these policies. [Fox Business, The Willis Report, 3/30/12, via Nexis]

Fox Guest: Electricity Prices Will "Skyrocket." From the March 28 edition of Varney & Co.:

STUART VARNEY: So bottom line, no future for coal in new power plants and electricity prices go up?

TOM BORELLI: Necessarily skyrocket.

VARNEY: Skyrocket?

BORELLI: Double digit. [Fox Business, Varney & Co., 3/28/12]

We've changed our commenting system to Disqus.
Instructions for signing up and claiming your comment history are located here.
Updated rules for commenting are here.