Furman says EPA carbon rules won’t hurt the economy

Source: Evan Lehmann, E&E reporter • Posted: Thursday, December 19, 2013

The president’s top economic adviser said yesterday that limiting carbon emissions at power plants won’t dampen the nation’s financial recovery, noting that it’s “very easy” to create economic benefits in the future landmark regulations.

The assertion by Jason Furman, chairman of the Council of Economic Advisers, foreshadows one of the thorniest challenges in crafting U.S. EPA’s standards to address rising temperatures: public concern about electricity prices and jobs.

The regulations on new coal-fired power plants, proposed in September, and on existing plants, due to be finalized in June 2015, will follow the “grain of the economy” by promoting natural gas and renewable energy — the use of which is already increasing because of falling prices, Furman said. So the rules’ economic impacts will dovetail with market momentum, he added.

“As an economist, what I do is look at the cost-benefit, and this is an area where it is very easy to design policies with benefits that massively outweigh the costs,” Furman said yesterday at a briefing with reporters at Third Way, a think tank for centrist Democrats.

That view is generally held by people who accept that climate change offers substantial risks. Then the cost of regulations is smaller than the price on society of rising seas, heavier downpours and hotter heat waves.

But that view will be fiercely contested in the final three years of President Obama’s second term, when administration officials hope to put carbon rules in place.

To Republicans, the regulations threaten to increase pressure on natural gas prices by exacerbating the shift away from coal. They say that could further destabilize the historically fluid price of gas. Add additional rules on its extraction through hydraulic fracturing, and you threaten to “wreak absolute economic havoc,” according to a senior GOP aide in the Senate.

“I think it is preposterous to say that they’ll be able to move these rules forward without any negative economic impact,” the aide said.

Coal dwindles; gas doesn’t

Furman’s view was supported this week by an analysis projecting that the nation’s reserves of natural gas will lead to a prolonged era of low prices. The Energy Information Administration estimates that gas will surpass coal as the most-used fuel in electricity generation in 2035, years earlier than the agency’s previous projection.

EIA estimated earlier this year that coal would continue to outpace gas, 35 percent to 30 percent, through 2040. Now it says that gas could be the dominant source of power generation in 21 years and that by 2040 it will account for 35 percent of generation to coal’s 32 percent.

That doesn’t soothe lawmakers in coal country. Rep. Ed Whitfield (R-Ky.), chairman of the Energy and Commerce Subcommittee on Energy and Power, said the administration’s regulations are exacerbating the closure of coal plants and hurting rural economies reliant on mining.

“EPA’s actions have already contributed to the loss of thousands of jobs in Kentucky and across the country and we have been warned about reliability impacts and price spikes as more coal plants go offline,” Whitfield said in a statement.

He and Sen. Joe Manchin (D-W.Va.) have introduced legislation to give Congress authority to approve EPA carbon regulations on existing power plants — a move that overrides Obama’s executive authority.

Are regulations cheaper? Yes and no

To economists, the matter of whether EPA regulations would hurt the economy depends on how the rules are drafted. If existing power plants, for example, are all made to meet the same amount of carbon reductions, it might be expensive. But that’s unlikely.

Alternatively, a “flexible” standard would be less cumbersome — and cost less — because it allows some plants to contribute more emission cuts than others. They could then sell credits to plants that can’t meet the reductions required by the standard.

“In general, regulations do have a cost,” said Dallas Burtraw, an economist with Resources for the Future who studies the electricity sector. “On the other hand, air pollution and climate change impose hidden taxes on the country.”

That’s the challenge. He said the cost of EPA’s rules could be erased by their economic benefits — as long as they’re written right.

“If these regulations are well-designed, they could yield benefits that are far greater than their costs,” Burtraw said.

Even so, they could still cost more than a wide-ranging program that prices carbon. Furman said yesterday that legislation like the Waxman-Markey bill, which would have capped emissions across the economy, is “closer to the ideal” than regulation. That’s because it costs less on a per-ton basis to cut emissions with a carbon tax or cap-and-trade program than with regulations.

“The main concern with the regulatory approach is that you may not be getting carbon reductions as efficiently as possible,”