NERA Economist Outlines Possible Costs, Consequences of Clean Power Plan

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--As President Barack Obama's Clean Power Plan (CPP) works its way through the federal courts, one noted economist shared her organization's estimates of its costs and consequences with a Metals & Minerals audience last week in Denver.

Annual U.S. energy spending is expected to rise from an average of $333 billion per year to between $362 billion and $372 billion between 2022 and 2033 under two scenarios examined by National Economic Research Associates, Incorporated (NERA) (Boston, Massachusetts), said Ann Smith, a NERA senior vice president. The estimated increases in annual energy spending would result in an 11% to 14% increase in inflation-adjusted retail electric prices, she told several hundred attendees at the 118th National Western Mining Conference & Exhibition, sponsored by the Colorado Mining Association (CMA) (Denver, Colorado).

The $29 billion to $39 billion increase in annual energy costs in the NERA analysis actually understates the total costs of CPP compliance, Smith said, because it excluded potential costs to upgrade the nation's electric transmission and distribution (T&D) network as well as its natural gas infrastructure. The CPP is expected to lead to a surge in natural gas use by Electric Power generators as well as a surge in spending on renewable energy sources. Many utility-scale renewable projects are sited some distance away from load centers, necessitating the construction of new transmission lines. And the increased use of natural gas in the power sector requires additional spending on Gas Pipelines and assorted infrastructure to transport the gas from where it is produced to where it is needed.

For more on the CPP, see August 5, 2015, article - Obama Unveils Final Clean Power Plan, But Will it Survive Court Challenge? and February 16, 2016, article - Unprecedented Stay by Supreme Court Casts Long Shadow Over Clean Power Plan.

The U.S. Environmental Protection Agency (EPA) (Washington, D.C.) sees things very differently. An August 2015 blog post from Tom Reynolds, EPA's associate administrator for external affairs, predicted the CPP would lower homeowner electric bills $85 per year while producing $45 billion of net benefits in 2030. "In short," he wrote, "the Clean Power Plan will protect Americans' health and their pocketbooks. The health benefits of this rule alone outweigh the costs 4 to 1."

NERA's Smith predicted the CPP could drive up retail electric rates by 10% or more for 40 states. Ten states could experience electric price increases of 30% or more, she said, adding retail electric costs during peak periods of demand could jump 40% or more for seven states.

One scenario investigated by NERA would allow for intra-state trading of carbon dioxide (CO2) emissions credits. In that scenario, cumulative retirements of coal-fired generation could approach 85 gigawatts (GW) by 2031, more than double NERA's current baseline assumption of just under 40 GW. In that scenario, thermal coal consumption could fall about 33%--from about 900 million tons per year in 2031 to about 600 million tons that year.

NERA also analyzed another scenario, where CO2 emissions credits could be traded on a regional basis. That scenario was slightly less draconian for coal-burning utilities and coal-mining companies. That scenario saw coal-fired generation closures closer to about 80 GW by 2031 and coal burning falling to about 625 million tons for that year. Several attendees and speakers at the CMA event derided the CPP as the "Costly Power Plan," though Smith did not join in that chorus.

This June, federal court review of the CPP will begin in earnest when the U.S. Court of Appeals for the D.C. Circuit begins its review. That court previously had declined to review the rule, but an appeal to the U.S. Supreme Court resulted in an unprecedented 5-4 ruling instructing the lower court to review the rule. Days after that Supreme Court order, Associate Justice Antonin Scalia, who voted with the majority, died. President Barack Obama has nominated Judge Merrick Garland to succeed Scalia, but the Republican-controlled Senate has vowed not to consider the nomination.

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