Does Repealing the Clean Power Plan Make Economic Sense?

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Wharton's Eric Orts and Daniel Kammen from the University of California-Berkeley discuss the repeal of the Clean Power Plan.

The decision earlier this week by the U.S. Environmental Protection Agency (EPA) to repeal the Clean Power Plan would force the U.S. to cede leadership in innovation and climate change policies to other countries such as China, hurt job growth in the energy industry and fail to prevent a whole range of adverse environmental and health effects, according to experts at Wharton and the University of California-Berkeley. The Obama-era plan, which has been moved from the EPA website to its archives, aimed to limit greenhouse gas emissions from power plants by helping states begin to replace coal with renewable energy sources.

EPA administrator Scott Pruitt described the Clean Power Plan (CPP) as a rule that exceeded his agency’s authority and as one that would cause “devastating effects … on the American people” in a press release. “Repealing the CPP will facilitate the development of U.S. energy resources and reduce unnecessary regulatory burdens associated with the development of those resources,” he said. “Any replacement rule will be done carefully, properly, and with humility, by listening to all those affected by the rule,” he added.

Pruitt’s decision was “sad” although it wasn’t surprising, said Daniel Kammen, professor of energy and public policy at the University of California-Berkeley, and founding director of the Renewable and Appropriate Energy Laboratory. “[We] know the transition to clean energy is not only something we need to do fundamentally and actually will save not only ratepayers money but will also save us in terms of environmental costs — which we are seeing all around us with hurricanes and storms, and here in my home area (California) with fires — and immediate health costs,” he noted. “So it’s a very sad economic choice, let alone the negative signal it sends in terms of environmental protection.”

According to Eric Orts, Wharton professor of legal studies and business ethics, the estimates for various health benefits under the Clean Power Plan include 3,600 deaths that will be prevented, 1,700 heart attacks, 90,000 asthma attacks, and 300,000 missed work and school-days. “That all adds up to long term benefits of about $54 billion.” Orts is also director of the school’s Initiative for Global Environmental Leadership.

Orts and Kammen discussed the end of Obama’s Clean Power Plan on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

The Context for Costs

Orts noted the Trump administration’s claim that repealing the Clean Power Plan will avoid $33 billion in costs verses the original estimate of $8.4 billion. He acknowledged that some costs will be incurred in implementing the plan, but pointed out that policy makers need to keep in mind the larger gains from the Clean Power Plan, such as reducing air pollution costs. “The [Trump] administration has declared war on almost all environmental regulations,” he said. Kammen added that environmental costs in the U.S. were $100 billion in 2012, but they are now more than double that amount, and could even be three, four or five times as large.

According to Kammen, the Clean Power Plan not only showed a clear cost-benefit analysis, but also provided incentives where each state could pick their own most cost-effective path towards energy efficiency, renewables and natural gas. He noted that many states where the Republican Party is dominant had begun to see the benefits of that program.

Ceding Ground to Other Countries

The Trump administration’s stance on climate change and clean energy is in sharp contrast to the policies being adopted internationally, Kammen said. He pointed out that China is investing $360 billion in clean energy, while Bangladesh has the world’s largest battery recycling program for home systems, and Kenya has become a clean energy leader. “These are countries that have decided that the energy and environmental story is important, but so is the economic leadership story,” he said. “[The U.S. policy] is ceding economic opportunity to others for technologies in which the U.S. has been the prime investor for the past decades.”

According to Orts, the debate over clean power or climate change doesn’t really have two sides to it, and “we get caught in a false equivalency in a lot of these discussions.” He said the issue is beyond argument, citing the advice from experts in both the scientific and economic communities. Instead of the Trump promise to “Make America Great Again,” the reversal on climate and energy policy will have the opposite effect, he noted. The Trump administration’s policy is undercutting the gains seen in solar, wind and other renewable power technologies. The shift to support fossil-fuel industries, especially coal, has been shown as “a loser” by numerous studies, he added.

The unwinding of the Clean Power Plan follows the U.S. pullout in June from the Paris Accord, the climate change agreement signed by 197 countries at a 2015 United Nations conference. Orts pointed out that the U.S. is technically still not out of the Paris agreement, and has to comply with a series of requirements to complete its pullout.

“[The U.S. policy] is ceding economic opportunity to others for technologies in which the U.S. has been the prime investor for the past decades.” –Daniel Kammen

States Stepping Up

The “bright side” is that many states have said they would go ahead with implementing the Clean Power Plan’s programs in any case, said Orts. Kammen noted that California, New York and Washington are among those states that have opted to stay in and implement the clean power programs. California has more than half of the solar panels installed in the country, its clean energy policies are as aggressive or more aggressive than those in Europe, and it has seen more job growth from the solar power industry than from traditional utilities, he added. Businesses, too, have been backing the Clean Power Plan “to preserve their competitiveness,” said Orts.

States and companies that might have opted to back clean energy programs would now slow down and lose economic competitiveness to China and other countries, Kammen predicted. He added that in natural disasters stemming from global warming, the poor and minority communities have been the first affected and least prepared. “Pulling back on the Clean Power Plan is an attack on poor and minority communities, above all others,” he said. Those impacts have been well documented in books by Robert Bullard, a professor at Texas Southern University, who is also known as the “father of environmental justice,” he noted.

Silver Linings

Orts saw the repeal of the Clean Power Plan opening an opportunity to educate people about the benefits of environmentally-friendly policies. “Long term, I expect the American public to have a change of view,” he said. The hurricanes and wildfires are related to climate change, and most Americans will begin to understand that corrective action has to be taken to cope with those disasters, he added. “You will have a shift back that will be even more serious and will have more political support going forward after Trump.”

Kammen pointed to the eroding feasibility of the coal industry. “The biggest irony in the whole story is that of coal,” said Kammen. The coal industry has decreased in value by a factor of 10 over the past several decades, and is worth an estimated $50 billion to $60 billion. “A Jeff Bezos or a Bill Gates could buy the whole [coal industry] more than once,” he said. He noted that ironically, the Clean Power Plan included an $8 billion retraining, re-education and transition fund for the coal industry. He described that as “an incredibly good deal” for states that are most hard hit by the shift away from coal. By contrast, there is no indication that the Trump administration will invest significantly in such retraining programs, he pointed out.

“Long term, I expect the American public to have a change of view.” –Eric Orts

Kammen hoped the Clean Power Plan repeal is contested all the way up to the Supreme Court. He said that several studies, including those done by his own lab (available on his Twitter feed @dan_kammen), show that the job impact of investing in natural gas, solar, wind and other renewable forms of energy outperforms the coal industry by up to a factor of five to one. “This is a story where the [Trump] administration is simply wrong on the basic economics, let alone sustainability and environmental justice.” (Wharton economics and public policy professor Jose Miguel Abito detailed how the Clean Power Plan would spark investment and efficiency in electricity generation in an interview with Knowledge@Wharton last year.)

Shaky Legal Terrain

Orts pointed out that notwithstanding the Trump administration’s moves to unwind Obama-era actions in environmental protection, the EPA has a duty to regulate greenhouse gas emissions. He expected the EPA to face lawsuits to force it to fulfill that obligation. Ironically, the EPA now could claim – after the repeal of the Clean Power Plan – that it does not have the authority to implement that plan. On the other hand, there could be a legal challenge that forces the EPA to come up with an alternative to regulate greenhouse gas emissions, he added.

In his former role as Oklahoma Attorney General, Pruitt has sued the EPA several times to block clean air and energy programs. “This is an agency designed to find innovative ways to regulate and set incentives [to protect the environment] and the Clean Power Plan does that,” said Kammen. “But the fact that Mr. Pruitt has been on the business end of lawsuits against that speaks to … a very shallow play by some people to hold on to money.”

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