President Obama’s Alleged “War on Coal” - Climate Change Edition

We have long suspected that the never-ending sturm und drang surrounding climate change would have little real impact on public policy or energy markets because no politician ever got elected by promising to impose — or defending the imposition of — significant, observable costs on the present for the well-being of the future … in any policy arena. Believe what you like about the science, but the inescapable political fact is that voters — and in particular, swing voters — have the time horizons of newborn babes. Any serious policy response to climate change would, by force, require a rather steep increase in fossil fuel prices and American voters have demonstrated time-and-time-again a deep aversion to exactly that. Good luck finding the pol-on-the-make willing to put his or her head into that political wood chipper.

If you listened to conservative policy activists, however, you might think we’ve found exactly that pol in the person of President Barrack Obama. Almost five months ago, his EPA issued its long-awaited regulations for greenhouse gas emissions, regulations that were required by law once the EPA deemed those gases a pollutant as defined by the Clean Air Act (a finding that was, in fact, made on December 15, 2009). And … the Right promptly went nuts. “EPA’s new rule will do much more than kill coal,” warned Myron Ebell of the Competitive Enterprise Institute. “The higher electricity prices caused by the EPA rule will close American factories and send jobs overseas.” The Manhattan Institute’s Robert Bryce charged that the proposed regulations would ultimately cost around $700 billion (the cost of replacing coal-fired power plants with natural gas-fired power plants) and, accordingly, “result in significant price increases for domestic electricity consumers.” Mike Brownfield and Nicolas Loris — both of the Heritage Foundation — argued that the regs mean “higher energy costs, fewer jobs, a less prosperous economy.” And so another talking point was born for the political Right as we enter the home stretch of the 2012 presidential campaign.

And yet … it’s simply not true. The regulation at issue proposes an emissions target of 1,000 pounds of CO2 per megawatt-hour of generation — something impossible for coal-fired power plants to meet without expensive carbon capture technology — but it applies only to brand-spanking-new, non-peaking natural gas power plants and coal-fired power plants that might be built some day in the future. Not to existing power plants. Not to existing power plants that undertake extensive upgrades that might deem them a “new source” for regulatory purposes under the Clean Air Act. And not to peaking gas-fired power generators.

That’s the key to understanding this regulation because — as the EPA points out (and as CEOs in the utility sector confirm) — there are no new coal-fired power plants in the pipeline that this rule might cover and no prospect of the same unless natural gas prices hit at least $9.60 per million BTU (in 2007 dollars) on a sustained basis. Moreover, almost all of the gas-fired power plants that will be built will meet these standards without any additional costs.

Hence the regulation will impose negligible costs and, as the EPA itself confesses, negligible benefits.

So why do it? EPA has two arguments. First — who knows? — the fuel market could change, and if it does — whammo! — the regs will bite. Second, the electricity market will be calmed by the removal of regulatory uncertainty.

The second rationale is fine, but what about the first? The Energy Information Administration (the analytic arm of the Department of Energy) finds that even in its high-economic-growth, low-coal-price, low-capital-cost for new coal-fired capacity, and high-gas-price scenario — that is, a perfect storm — no new coal-fired power plants would be built through 2025 (when the modeling ends) in its baseline scenario. EPA’s also examined an alternative scenario where shale gas production is only half what is expected and electricity demand almost 50 percent higher than expected. Still, no new coal through 2020 (when that particular model ends its analysis).

Now, friends of ours on the Right might counter — reasonably enough — that history is littered with forecasts of energy price futures that look ridiculous in retrospect, so we shouldn’t be so confident that natural gas prices won’t skyrocket in the future. Well, anything’s possible, but it’s worth noting that the futures price for natural gas in August 2022 (the farthest out that one can buy gas on the New York Mercantile Exchange) is $3.01 per million BTU. Likewise, published forecasts from the various for-profit consulting operations all expect gas prices in the foreseeable future to be only a smidge higher than they are today. For context, the average annual price of natural gas has never exceed $9.60 per million BTU. And the price has been above $9.60 in only 8 months over the last 15 years.

For gas prices to get this high on a sustained basis, you have to assume that either (a) shale gas will prove a colossal, over-hyped, mega-bust (something the Right is most definitely not in the usual business of positing) or (b) the U.S. auto-fleet will quickly transition to natural gas powered engines, driving up the demand for natural gas and, thus, the price. Either is theoretically possible, but neither is very likely, much less something one might posit in the course of making claims about the ultimate cost of EPA’s regulations.

One might think that conservatives would be positively euphoric about these regs … and environmentalists, likewise, spitting mad. Once the Supreme Court gave the EPA authority to regulate greenhouse gas emissions under the aegis of the Clean Air Act, draconian rules to shut-down the coal sector could have been imposed unilaterally by the Obama administration. They could have gone after existing coal-fired generation, but didn’t. They could have gone after coal-fired power plants that upgraded into “new source” status, but didn’t. They could have imposed steep requirements on old and/or new gas-fired generators, but didn’t. They essentially … did nothing: And this from an administration that had long argued that political opponents better come to the negotiating table and sign-on to a cap-and-trade bill lest the administration grow tired of talk and ram something through unilaterally.

Alas, the Right’s hysteria is given political credence by the Left’s inexplicable enthusiasm for this regulatory nothing-burger. The New York Times editorialized that the rule is “an important step” that “will accelerate the shift from coal to natural gas and cleaner fuels.” The Center for American Progress and the Sierra Club, for their part, strongly endorsed the rule because, they say, it will stop 22 coal-fired power plants currently in the pipeline from going forward, which will in turn cut carbon emissions by 123 billion pounds annually (a whopping 1 percent of projected total U.S. emissions). Apparently, they, too, either haven’t read the rule or are spinning madly for their Obama-voting membership base. The rule, in fact, notes that “transitional sources” — that is, coal-fired power plants that have applied for permits but haven’t begun construction as of yet — aren’t covered by these regulations as long as investors put a shovel in the ground within a year after the new rules take full legal effect. And for the record, the EPA counts 15 such “transitional sources” that might be in play; not 22.

What do we make of this? First, the Obama administration believes that championing regulations to reduce greenhouse gas emissions is a political loser and simply isn’t going to do so until political conditions change (and that isn’t likely). Second, the political heat is so great in the climate change kitchen that a great deal of the analysis about what is, and is not, going on simply cannot be trusted. Third, we were right. The climate change debate is like the population debate of the 1970s; something that people often pound the table about but are never going to pound-out meaningful legislation over.

Jerry Taylor and Peter Van Doren are senior fellows at the Cato Institute.