Why Media Should Stop Citing NERA's Flawed Study On The EPA Climate Plan
Research ››› ››› DENISE ROBBINS
A 2014 report from National Economic Research Associates (NERA), which claimed that the Environmental Protection Agency's (EPA) Clean Power Plan will greatly increase electricity bills, has been roundly criticized as premature and reliant on faulty assumptions. But even after the EPA released the final version of their plan -- which has significant differences from the draft plan -- media have continued to uncritically cite NERA's report. Expert analysts explained to Media Matters the NERA report's many flaws, and why media should avoid broadcasting NERA's claims if they want to report the facts.
EPA Projects Clean Power Plan Will Reduce Electricity Bills, Provide Net Economic Benefits. The Environmental Protection Agency's (EPA) Clean Power Plan will place the first-ever limits on carbon pollution and is a key part of President Obama's climate agenda. In the final rule, EPA projects that electricity bills will rise modestly in the short term (2.4 to 2.7 percent) but then decline up to 3.8 percent between 2020 and 2030, resulting in electricity bills lowered by an average of $80 per year in 2030. The EPA also projects that the rule will bring climate and public health improvements that result in $26 to $45 billion in annual net benefits to the economy. [Union of Concerned Scientists, 8/5/15]
Earlier Fossil Fuel-Funded NERA Study Warned That Clean Power Plan Would Drastically Increase Electricity Prices, Harm Economy. NERA released a study in October, 2014 -- commissioned by fossil fuel trade associations including American Coalition for Clean Coal Electricity, American Fuel & Petrochemical Manufacturers, and National Mining Association, among others -- claiming that the EPA's climate plan would cause double-digit increases in electric prices in 43 states and add $479 billion in energy system costs. [NERA, October 2014]
Media Have Uncritically Cited NERA At Least 25 Times To Claim Clean Power Plan Will Increase Electricity Prices Since The EPA's Final Rule Was Released. Since the final Clean Power Plan was released on August 2, the NERA analysis on EPA's draft report was cited in U.S. newspapers and online news at least 25 times. [The Wall Street Journal, 8/2/15; NPR affiliate KRWG, 8/3/15; FoxNews.com, 8/3/15; The Star-Telegram, 8/3/15; MLive.com, 8/3/15; Denver Business Journal; 8/3/15; Investors' Business Daily,8/3/15; Centre Daily Times: 8/4/15; Washington Examiner, 8/4/15; National Review, 8/4/15; The Washington Times, 8/4/15; The Washington Times, 8/5/15; The Salt-Lake Tribune, 8/5/15; The Hill, 8/6/15; The Oklahoman, 8/8/15; The Cincinnati Enquirer, 8/10/15; Newsmax, 8/10/15; The Gazette, 8/11/15; The Marshfield News, 8/13/15; The Missouri Times, 8/13/15; The Daily Record, 8/14/15; The Hill, 8/18/15; Naples Daily News, 8/19/15; The Detroit-News, 8/21/15; Argus Leader, 8/21/15]
But Several Reports And Experts Have Explained NERA's Many Flaws. The Washington Post's Fact Checker blog issued one of several challenges to the flawed NERA report. Now that the EPA's final rule has been released, several policy analysts and experts explained to Media Matters how NERA's report has been rendered even more irrelevant, and why media should stop treating its findings as legitimate.
Final Plan Has Significant Changes From Draft Plan. In the final version of the Clean Power Plan, the EPA offered states more time to adapt to the plan, allowing them an extra two years to both submit implementation plans -- from 2016 to 2018 -- and to reach compliance -- beginning 2022 rather than 2020. The EPA also changed the emission targets, making them more aggressive on a nation-wide level overall but easing statewide emission targets. Utility Dive explained: "Rather than setting emission reduction goals for power plants on a state-by-state basis -- which resulted in some wildly divergent expectations for different states -- the EPA elected to establish "uniform rates" across the nation for all coal and gas plants, the agency wrote in the final rule." The plan also places a greater emphasis on renewable energy and energy efficiency, as the EPA explained in a statement to Media Matters:
EPA is also creating a Clean Energy Incentive Program to reward early investments in wind and solar generation, as well as demand-side [energy efficiency] (EE) programs implemented in low-income communities, that deliver results during 2020 and/or 2021. Through this program, EPA intends to make allowances or ERCs available to states that incentivize these investments. EPA is providing additional incentives to encourage EE investments in low-income communities. [E&E Publishing, 7/30/15; Utility Dive, 8/5/15; Emailed statement to Media Matters, 8/14/15]
National Resources Defense Council: Changes To Clean Power Plan Rendered NERA's Analysis "Completely Irrelevant." Starla Yeh, a senior policy analyst at the Natural Resources Defense Council (NRDC), said NERA's report has been "rendered completely irrelevant" because "we already have a final rule and the proposal is very different from it, both in terms of the state emission limits but also because of the structure of the rule." She also explained how the state-specific carbon dioxide emissions reduction targets -- which the NERA report bases many of its findings on -- have been changed:
Since the finalization has been released, there's a lot of things that are different about the final Clean Power Plan and which render a lot of the proposal analysis completely irrelevant. In terms of the differences in the way the final was structured from how the proposal was structured, we have a longer time before our compliance rules. The first compliance date has been set back to 2022. There is a clean energy incentive program that operates in the 2020 and 2021 years, prior to the first compliance date. There are infinitely more possibilities for flexibility and options for states. And there's also been a change in baseline for the target settings. So that means that, to begin with, [seems like there should be a "for" here] the CO2 emissions rate reduction for the 2030 target relative to 2012, that number will no longer be accurate for the final rule for any of the states. All of that data has changed. [Phone call with Media Matters, 8/14/15]
Union of Concerned Scientists: NERA Study "Became Out Of Date" The Day The Final Clean Power Plan Was Released. John Rogers, a senior analyst at Union of Concerned Scientists (UCS), told Media Matters that the NERA report "became out of date" the day EPA released the final plan, "if it wasn't already." He continued, "It's an analysis of a draft plan ... that is no longer relevant." [Phone call with Media Matters, 8/12/15]
Even Before Release Of Final Plan, Washington Post's Fact Checker Called It "Misleading" To Cite NERA Numbers "Which [Were] Mere Projections" When Published. When Sen. James Inhofe (R-OK) cited NERA's study to claim that the Clean Power Plan "will result in double-digit electricity price increases in 43 states," The Washington Post's Fact Checker blog said it was "misleading" of him to cite NERA's projections. From the Post (emphasis added):
It's impossible to make accurate cost projections because the rule is not yet final, and states will decide how to meet their emissions goal. Costs can vary depending on state, regional or local policymakers' decisions.
His claim that electricity prices will increase by double digits comes from a study commissioned by industry groups that oppose the Clean Power Plan. But the claim is misleading. His estimates are on the high end of a range of cost impacts, which are mere projections at this point ... A lot of the costs can be driven down by state, local and regional policymakers, and some of them already are working with the EPA to figure out cost-effective plans. This is a highly technical topic with many caveats yet to be sorted out. [The Washington Post, Fact Checker, 3/13/15]
NERA Study Relies On Misleading Report To Inflate Energy Efficiency Costs. The NERA study relies largely on a 2012 economic paper titled, "Is There an Energy Efficiency Gap?" In response, the American Council for an Energy-Efficient Economy (ACEEE) published an article that said the authors "selectively mine available data to make their points, ignoring other important findings in the various articles they cite." From ACEEE's response:
[T]hey selectively mine available data to make their points, ignoring other important findings in the various articles they cite. For example, in much of the research they cite, they emphasize results using the highest discount rates analyzed in a paper and do not even mention lower discount rate scenarios in the same paper. When the data are examined more broadly, many of their arguments do not stand up to scrutiny. [NERA, October 2014; ACEEE, July 2012]
NRDC: NERA's Cost Estimates Are 63 Percent Higher Than EPA's, 150 Percent Higher Than DOE's -- A Bad "Analytical Choice." NERA's cost estimates for energy efficiency investments are much higher than estimates used by federal agencies. The NRDC pointed out that NERA's estimates are "63% higher than EPA's assumed costs, and approximately 150% higher than those by the Department of Energy's Lawrence Berkeley National Lab (DOE/LBNL)." NRDC's Yeh explained that NERA's assumption of high energy efficiency investment costs was an "analytical choice" that heavily impacted their analysis:
The key in designing these analyses and these scenarios is really the strength of the assumptions that you put into it. So if you put really high cost assumptions into there, you're going to get high costs estimates out of the model, that's just how it works. The analytical choices that are made are the most important in terms of designing an analysis that is relevant and that is representative and that actually measures the impacts of what you're trying to measure. [NRDC Switchboard, 10/18/14; Phone Call with Media Matters, 8/14/15]
NERA Report Relies On Energy Information Administration (EIA) Projections For Renewable Energy Costs. In its methodology section, the NERA study states that "NERA evaluated the potential impacts of the various CPP scenarios using its proprietary NewERA model," which is "calibrated to the U.S. Energy Administration (EIA) Annual Energy Outlook (AEO) 2014 Reference Case projection." [NERA, October 2014]
But Renewable Energy Prices Drop Faster Than EIA Can Keep Up. CleanTechnica's Silvio Marcacci pointed to an analysis from the Sun Day Campaign, which claims that the U.S. will achieve 16 percent renewables 20 years before EIA's prediction. Another CleanTechnica article detailed how EIA has consistently underestimated the growth of renewable energies in its forecasts:
EIA's previous annual forecasts through 2040 have drawn criticism for lowballing wind and solar power and understating the potential of renewables to cover more than a small fraction of the country's electricity needs.
As analyst Jeff St. John points out in Greentechmedia.com, inherent problems with the EIA's numbers include the following:
- EIA fails to keep up with industry data on the rapidly falling costs of renewable technologies.
- EIA historically underestimates continuing performance improvements in terms of increasing capacity factors, or the amount of "nameplate" capacity of renewables.
- EIA's cost multipliers assume that future renewable power installations will cost more than those already built.
- Data on solar power projects excludes those smaller than 1 megawatt in size (e.g., no data on the meteoric role of rooftop PV). [CleanTechnica, 4/16/14; 4/20/15]
DOE Report: Wind Energy Costs Are Plummeting. A recent report from the U.S. Department of Energy's Lawrence Berkeley National Lab (Berkeley Lab) suggests "that wind is being installed at a rapid rate, that its costs are plummeting, that its technologies are advancing, and that it is creating a growing number of jobs to boot," according to The Washington Post. The Post continued:
[M]ost striking, [the report] found that the wholesale cost of wind energy -- bought under a "power purchasing agreement," or PPA, in which a utility or company buys power from a wind farm under a long term contract -- is now just 2.35 cents per kilowatt hour. That's the lowest it has ever been.
"At 2.35 cents per kilowatt hour, wind is cheaper than the average price of wholesale electricity in many parts of the country," says Ryan Wiser of Lawrence Berkeley National Laboratory, a lead author of the new report. [The Washington Post, 8/10/15]
Berkeley Lab: Solar Prices Fell 10-20 Percent In 2014. The Berkeley Lab also recently released its annual solar energy cost-tracking report, which found that solar energy prices fell between 10 and 20 percent during 2014, a trend that is expected to continue. A press release from the Berkeley Lab stated: "The installed price of distributed solar photovoltaic (PV) power systems in the United States continues to fall precipitously." [LBL.gov, 8/12/15]
ThinkProgress: EIA Does Not Incorporate Policy Changes. ThinkProgress reported that "one of the biggest problems with drawing conclusions from the EIA projections is that the agency does not factor in policy changes." [ThinkProgress, 4/15/15]
Union of Concerned Scientists' John Rogers: EIA "Still Low-Balling Renewable Energy's Potential ... A Consistent Theme." UCS senior analyst John Rogers said that when EIA released their most recent annual energy outlook it was "pretty clear that EIA [was] still low-balling renewable energy's potential, and this has been a consistent theme." But Rogers noted that EIA's fault is partly due to a "time lag in the system," and that NERA "should be able to use data from 2014 if not 2015 on what wind and solar actually cost":
It was pretty clear that EIA is still low-balling renewable energy's potential. And this has been a consistent theme. EIA has gotten a lot better over the years, they're getting a lot closer, but some of this is a time lag in the system. If they're using published data from three years ago, whereas someone like NERA should be able to use data from 2014 if not 2015 on what wind and solar actually cost. [Phone call with Media Matters, 8/12/15]
NRDC's Yeh: "Serious Fault" For NERA To Not Incorporate Falling Cost Of Renewables. NRDC senior policy analyst Starla Yeh said it was a "serious fault" for NERA to omit the most recent information on renewables:
The cost assumptions for renewables and energy efficiency, we understand to be declining nearly precipitously as we go forward. Every time DOE, Lazard, and many other authorities release a new paper or a new survey on the costs of renewable projects, the costs keep on going down. And we see that as a continuing trend going forward. So the fact that that is not incorporated at all into NERA's analysis is, I think, a very serious fault. [Phone call with Media Matters, 8/14/15]
EDF's Nicholas Bianco: "Economics Of Renewable Energy Generation Are Changing" Quickly. Nicholas Bianco, director of regulatory analysis at the Environmental Defense Fund (EDF), explained how the cost of renewable energy is declining at such a rapid pace that "even the most serious modeling efforts that take place oftentimes end up falling behind the curve":
The notion that it's going to be expensive to reduce emissions in the power sector simply does not line up with what we're seeing play out on the ground for the last decade. We're decarbonizing at a rapid rate already. Emissions are down 15 percent since 2005, we're almost halfway to the 2030 target and this is even before a federal policy is put into place. Just imagine what we can do when we create this consistent signal to decarbonize across the U.S.. Go even beyond these trends and you see even deeper change, with renewables and natural gas accounting for 93 percent of all new generation since 2000. These are precisely the solutions, the technologies, that are contemplated and promoted by the Clean Power Plan.
One of the things it's worth noting is -- one of the things I think folks don't really appreciate right away is just how quickly the economics of renewable generation are changing. So that means even the most serious modeling efforts that take place oftentimes end up falling behind the curve. If you're using data that's four years too old, you've missed a huge amount of cost declines in the renewable energy industry. This is an issue that we've actually seen in the government's own modeling. EIA themselves regularly uses cost estimates that are still too high compared to what we're seeing play out. And if not, certainly EIA are very serious, very committed modeling shop, committed to providing useful information to people across the country. But the economics are changing so fast it's hard to keep up. And that's a fantastic thing to see for everyone who wants to see a decarbonizing economy. [Phone call with Media Matters, 8/6/15]
NERA Study Ignores Economic Benefits Of Reducing Carbon Pollution. NRDC's Laurie Johnson wrote that NERA's study was a "valiant, but ultimately failed, attempt to portray first-ever proposed limits on carbon pollution as an economic calamity" because [emphasis original] "as always, NERA ignores the avoided health and climate change benefits from reducing carbon pollution. For the Clean Power Plan, these include an annual 2,700 to 6,600 avoided premature deaths and 140,000 to 150,000 asthma attacks in children, by 2030." [NRDC.org, 10/18/14]
EPA Predicts Plan Will Result Annually In Up To $54 Billion In Economic Benefits, Thousands Fewer Premature Deaths. From an EPA fact sheet on the plan:
The Clean Power Plan has public health and climate benefits worth an estimated $34 billion to $54 billion per year in 2030, far outweighing the costs of $8.4 billion.
Reducing exposure to particle pollution and ozone in 2030 will avoid a projected
- 1,500 to 3,600 premature deaths
- 90,000 asthma attacks in children
- Up to 1,700 heart attacks
- 1,700 hospital admissions
- 300,000 missed school and work days
From the soot and smog reductions alone, for every dollar invested through the Clean Power Plan -- American families will see up to $4 in health benefits. [EPA.gov, accessed 8/24/15]
If NERA Study Included Health And Climate Benefits, It Would Actually Show Net Economic Benefits. In NRDC's analysis of the NERA report, the group used NERA's methodology to examine what the findings would be if the report had incorporated estimated economic benefits and alternative cost assumptions. NRDC found that even with NERA's unrealistic energy efficiency cost estimate, the economic benefits would be nearly twice the economic costs. Under more plausible energy efficiency assumptions, "[t]he benefits of the Clean Power Plan are on the order of 5 to 23 times NERA's total cost estimate," with total annual costs ranging "from $2 to $11 billion (note: EPA estimates about $8 billion), compared to $55 billion in health and climate benefits." From the NRDC Switchboard:
Following the steps above, here's what NERA's analysis looks like under its own energy efficiency cost assumptions versus more realistic ones:
[NRDC Switchboard, 10/18/14]
Experts Criticized 2014 NERA Ozone Report For Not Including Benefits, Calling It "A Propaganda Piece" That Answers A "Senseless Question." Experts previously criticized NERA's 2014 report on smog standards for omitting health benefits -- the same criticism applies to NERA's report on the Clean Power Plan, which also leaves out the billions of projected health and climate benefits. Emily Davis, an attorney at the National Resources Defense Council (NRDC), said of the ozone report's omission:
More than anything, that failure to acknowledge the harms caused by air pollution speaks to what a propaganda piece this is and, how divorced it is from reality. [Emily Davis, 8/18/14, via Media Matters]
And Frank Ackerman, lecturer in climate and energy policy at the Massachusetts Institute of Technology (MIT) and a senior economist at Synapse Energy Economics, said:
[T]here's no reason to follow NERA in forgetting the health benefits -- that's the whole point of a regulation like this.
So in cost-benefit terms, they are answering the senseless question, "If there were no resulting health and environmental benefits, would it be worth engaging in environmental regulation?" The negative answer is not surprising, and is also not informative. If you don't need food, is it worth spending money in a supermarket? Yet the supermarkets are full of shoppers. Many costly environmental regulations have benefits far exceeding their costs; but you can't tell that from a study like NERA's. [Frank Ackerman, 8/15/14, via Media Matters]
EDF's Bianco: NERA Report "Stacked The Deck" Against Low-Carbon Solutions, Is "Completely Out Of Step" With "Independent And Transparent Analyses." Nicholas Bianco, Director of Regulatory Analysis at the EDF, said NERA's findings "are completely out of step with independent and transparent analyses that show that the nation can actually reduce emissions at a very modest cost," adding that EPA's modeling "is as transparent as it can possibly be." Bianco added that NERA "stacked the deck" against the most cost-effective low-carbon solutions:
These findings are completely out of step with independent and transparent analyses that show the nation can actually reduce emissions at a very modest cost ... And of course, EPA's modeling is as transparent as it can possibly be.
In short, the analysis -- the NERA report is not only old and based on the proposed rule -- which didn't include a number of provisions that has made it easier for sources to come into compliance -- but, importantly, their report stacked the deck against many of the low-carbon solutions that we expect to see deployed in response to the Clean Power Plan. Solutions that are very cost effective. The report is very simply out of step with what we're seeing play out on the ground, and what we've seen as a result from a number of other highly credible, highly transparent analyses on the topic.
There's a number of analyses that are out there that are more transparent and that have more up-to-date assumptions, and I think at a minimum, people that are looking at this should be reporting on those as well and not taking the NERA report -- particularly with the flaws that we know exist with its methodology. [Phone call with Media Matters, 8/6/15]
EPA Spokesperson: Agency Uses "Transparent Approach, Based On Peer-Reviewed Science And Models," Which "Stands In Contrast" To NERA's Study. The EPA stated to Media Matters:
[T]he benefit-cost analyses of major rules -- including the Clean Power Plan -- are published with rulemaking proposals, go through public review, and are revised in response to public comments. EPA's transparent approach, based on peer-reviewed science and models, stands in contrast to some of the studies used to criticize our work. [Statement to Media Matters, 8/14/15]