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Chamber Study Predicts Obama Climate Rule Will Kill Jobs

By Mark Drajem
May 28, 2014 12:07 PM EDT 507 Comments
An Operating Engineer prepares to move a cut of coal hoppers for unloading at the Tennessee Valley Authority Paradise Fossil Plant in Paradise, Kentucky.
Photographer: Luke Sharrett/Bloomberg
An Operating Engineer prepares to move a cut of coal hoppers for unloading at the Tennessee Valley Authority Paradise Fossil Plant in Paradise, Kentucky.

The nation’s biggest business lobby says President Barack Obama’s plan to tackle climate change could cost the U.S. economy $50 billion a year. Supporters predict it will create jobs and lower power bills.

The U.S. Chamber of Commerce and Natural Resources Defense Council are both releasing economic impact studies this week, signaling that the political battle over the president’s plan will be fought over dollars and cents. For Obama, the risk is the plan gets labeled a job-killer just as campaigns heat up for an election that could determine control of the U.S. Senate.

In an analysis released today -- days before the Environmental Protection Agency unveils a proposal to cut carbon dioxide emissions from power plants -- the Chamber said that an ambitious pollution-control effort could force more than a third of the coal-fired power capacity to close by 2030, resulting in economic losses of $50 billion a year and the elimination of 224,000 jobs.

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“This raises serious questions that need to be answered,” Karen Harbert, president of the Chamber’s Institute for 21st Century Energy, said in an interview. “Utilities will be faced with some very unappealing choices.”

State Flexibility

While the Chamber isn’t taking a position on the proposal before its release, the dire economic warnings in its analysis shows that that lobbying powerhouse is unlikely to back off opposition to the Obama administration’s efforts to fight climate change. Environmental groups such as the NRDC say that the EPA’s pledge to give states wide leeway will limit the costs, which could be offset by lower electric bills for consumers as utilities become more efficient.

The administration is focusing on an approach that would let states set up their own systems to achieve mandated cuts, including linking into existing cap-and-trade networks, or expanding the use of renewable energy, according to people familiar with the plan.

And the EPA, which said any details about the rule are speculation at this point, says the economic risks of not dealing with the threat of climate change are real as well.

“The cost of inaction on climate is the real drain on our economy,” Liz Purchia, an EPA spokeswoman, said in an e-mail. “In 2012, we saw the second-costliest year in U.S. history for natural disasters. Even the strongest sectors can’t escape the pressures of a changing climate, so it is time for us to lead.”

Health Costs

NRDC is set to release a report tomorrow showing that the rules could create hundreds of thousands of jobs and cut health-care costs and power bills.

“The costs are certainly quite modest,” said Starla Yeh, an NRDC fellow who helped develop and analyze its proposal. With efficiency programs, “the savings in fuel and maintenance you forgo balances out the costs.”

In fact, while the Chamber study predicts electricity costs will increase, especially in the coal-heavy states of the Midwest and South, the NRDC says efficiency gains will mean a drop in wholesale electricity prices, which has led some utilities to complain about “demand destruction,” Yeh said.

Obama has pledged to use his regulatory might to cut U.S. greenhouse gases about 17 percent by 2020 over 2005 levels, with deeper cuts to follow. Groups such as Resources for the Future say achieving those reductions requires the EPA to order cuts deeper than 17 percent in power-plant emissions. Power plants are the top source of carbon-dioxide, and the rules aimed at electricity generators could be followed by similar efforts for refineries, steelmakers and cement plants.

Future Targets

The Chamber hired the independent research firm IHS Energy to analyze a plan produced by the NRDC that people familiar with the deliberations say was considered by the Obama administration in developing its approach. The NRDC proposal, released in late 2012, calls for using a broad approach to achieve cuts of as much as 30 percent in emissions by 2020 compared with 2005. For its analysis, the Chamber extended those cuts out for another decade, to achieve reductions of 40 percent by 2030.

Under those assumptions, coal’s share of the generating mix would fall to 14 percent from about 40 percent now, while 114 gigawatts of coal-fired generating plants would shutter, it said. The compliance costs over that period would be $28 billion a year, with $17 billion of that passed on to consumers as higher electricity costs, the study said.

Dueling Forecasts

Those higher rates are “an issue of competitiveness with the rest of the world.” Harbert said.

The Chamber’s analysis differs from that of NRDC because it forecasts a steady increase in demand for electricity and predicts that the energy efficiency savings that NRDC forecasts aren’t possible.

And the costs come on top of the billions of dollars utilities are now spending to comply with the EPA’s mercury rule, which phases in by 2016. To be sure, a $50 billion cost represents 0.31 percent of the overall U.S. gross domestic product, and critics say business groups have a long history of overstating their predictions of what EPA rules will cost.

“Critics have tried for years to convince people that more pollution equals more jobs and a better economy, but history has proved them wrong over and over again,” EPA’s Purchia said. “Climate action sharpens America’s competitive edge and spurs innovation.”

Exelon, Entergy

And not all of what it counts as costs are universal negatives for companies. Nuclear-reliant power producers such as Exelon Corp. (EXC) and Entergy Corp. (ETR) say the EPA rules could help their struggling plants get a leg up in the competitive power markets.

Under the Chamber’s analysis, use of natural gas would increase to 46 percent of total generation by 2030 from about 27 percent now, which could be a boon for gas producers such as Exxon Mobil Corp. (XOM), and power generators with gas plants.

Also this week, companies such as OPOWER Inc. (OPWR), which helps consumers monitor and cut electricity bills, will showcase ways their technology could prosper under the EPA rules.

“We see EPA’s carbon rules as a huge opportunity to modernize our grid, and that will help the economy overall,” said Malcolm Woolf, the senior vice president for government affairs at Advanced Energy Economy, a business group that represents lower-carbon power suppliers and efficiency companies. “We see this as a real opportunity.”

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann

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