Obama's War on Coal?
By David Henderson
I was working Sunday on a talk I’m giving on October 23 in Dallas on Obama’s economic policies. One thing I had taken as given, having talked to a few people who I thought had followed the issue closely, is that Obama is making a “war on coal,” specifically on coal-fired plants. But one of the great things about blogging and speaking is that when I write about an issue for potentially thousands of people (blogging) or speak about an issue in front of hundreds of people (speaking), I check my facts.
Imagine my surprise, then, when I found an August 31 article by Jerry Taylor and Peter Van Doren of the Cato Institute in which they make the claim that Obama is not conducting a war on coal. They are the authors of the article on Energy in my Concise Encyclopedia of Economics and it’s one of my 20 favorite (out of about 175 articles) in the book. Indeed, I’ve used it in a number of courses I teach at the Naval Postgraduate School. So with me they have a lot of credibility. The whole thing, which is not long, is worth reading.
First, Taylor and Van Doren highlight the statements of a number of conservative policy activists that the regulations issued on coal-fired plants are extreme. Then they do some analysis.
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.
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).
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.
That makes sense to me. I knew that Obama wants to win the electoral votes of Ohio. I had wondered why he put so recklessly put those votes at risk. Now I know that he hasn’t.