NEWS Knowledge@Wharton: “Does Repealing the Clean Power Plan Make Economic Sense?”

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For the pod­cast, click here.

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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