David R. Henderson  

Obama's War on Coal?

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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.


And later:
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).

And finally:
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.


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COMMENTS (11 to date)
Steve Y. writes:

"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: "

I think that you may be missing the point. This is like prosecutorial discretion, where officials mercifully or through cold calculation decide not to flex their muscle. It's better that there is no possibility of them doing those things that the authors say they could have done.

Nice little power plant you have there. Wouldn't want to see anything happen to it.

Daublin writes:

I'm sorry, but, the reason this is not an attack on coal is that, with this regulation in place, nobody will be building a new coal plant?

What should we think is the reason that no new coal plants are being built? Isn't it possible that it's because, "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..." ?

MikeDC writes:

The first two commentators point out the absurdity of the idea that regulating new activity out of existence is somehow not an attack on that activity (a dowright Orwellian concept to buy into David), but the final statement is also self-refuting.

It would be reckless to act while electoral votes are at stake. But if he's re-elected, he will no longer have that consideration holding him back.

Blackadder writes:

While the new CO2 limits effectively ban construction of new coal plants, it's true that they don't touch existing plants.

However, several other new EPA rules do go after existing coal plants (chiefly the Mercury and Air Toxics Rule and the Cross-State Air Pollution Rule). According to IER, those rules will lead to shuttering of nearly 10% of existing coal power generation over the next few years.

William Yeatman writes:

For a direct rebuttal of Jerry Taylor and Peter Van Doren's mistaken thesis, please see this post, "Yes, America, There Is a War on Coal."

http://www.globalwarming.org/2012/09/23/yes-america-there-is-a-war-on-coal/

Johnson85 writes:

I think everybody else has pretty much pointed this out, but I'm at a loss of words to describe how far off target this post is. I'm a big fan of Econlog and am very disappointed to see one of its contributors get snowed like this. And the cited authors had to be doing it intentionally, because fifteen minutes of research would make it clear that while the Obama administration is using the threat of a carbon tax to prevent new coal plants (to the extent anybody would consider starting on with current gas prices), for the truly, it's other regulations they are using to really increase people's electricity prices for no discernible benefit.

MingoV writes:

Blackadder nails it. The mercury standard is absurdly strict and, like many such regulations, is not based on anything other than someone in the EPA inventing a cutoff level.

Mike Rulle writes:

While I am a little surprised by this study, perhaps it is not surprising. We all remember the Kyoto treaty which our Senate voted down 98-0 in 1998. When studies were done on whose greenhouse gasses grew less, the US or Europe, during the next 10 years, it turned out it was the US.

My interpretation at the time was that the citizens would not stand for relatively higher energy prices regardless of their simultaneous views on "being green". Hence, exceptions were made all over the place---just less efficiently than our market based activity.

I still think this is true world wide. However, as some have mentioned above, it is still dangerous to have this power hanging over our heads.

David R. Henderson writes:

@Steve Y.,
I think that you may be missing the point. This is like prosecutorial discretion, where officials mercifully or through cold calculation decide not to flex their muscle. It's better that there is no possibility of them doing those things that the authors say they could have done.
You're making a good point, but it doesn't contradict what I said. I'm not missing that point. I'm addressing a different point. I'm with you in not wanting government officials to have discretionary power. My point--and the authors' point--is that they didn't use that power in a particularly harmful way.

@Daublin,
I'm sorry, but, the reason this is not an attack on coal is that, with this regulation in place, nobody will be building a new coal plant?
No. That's not it. I don't want to repeat the article here: the authors answer your question.

@MikeDC,
The first two commentators point out the absurdity of the idea that regulating new activity out of existence is somehow not an attack on that activity (a dowright Orwellian concept to buy into David), but the final statement is also self-refuting.
Two points:
1. Read the article. Their point is that it's not a binding constraint. They may or may not be right, but give an argument that it is binding. I found their argument convincing.
2. It's not self-refuting. Indeed, your comment admits as much. You agree with me that Obama would be foolhardy to pursue this now.

@Blackadder,
However, several other new EPA rules do go after existing coal plants (chiefly the Mercury and Air Toxics Rule and the Cross-State Air Pollution Rule). According to IER, those rules will lead to shuttering of nearly 10% of existing coal power generation over the next few years.
Thanks. I'll take a look.

@William Yeatman,
Thanks. I'll take a careful look at it.

MikeDC writes:

@David
1. I have read the article. I found their article unconvincing because:
a) they seem to have cherry-picked one particular regulation and ignored several other similar regulations that were passed at about the same time and with the same purpose. Yes, if you only touch the elephant's trunk, it's a snake!
b) Even taking just this one argument though, I don't find convincing the argument that the constraint is not binding because of current pricing (in the midst of a global recession). In fact, if you really think about what Taylor and Van Doren are saying in light of the global economy, it sounds contradictory. They say:

1. 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.

but a little later they say:

2. The Center for American Progress and the Sierra Club, for their part, strongly endorsed the rule because, they say, it will stop 22 coal-fired power plants currently in the pipeline from going forward, which will in turn cut carbon emissions by 123 billion pounds annually (a whopping 1 percent of projected total U.S. emissions). Apparently, they, too, either haven’t read the rule or are spinning madly for their Obama-voting membership base. The rule, in fact, notes that “transitional sources” – that is, coal-fired power plants that have applied for permits but haven’t begun construction as of yet – aren’t covered by these regulations as long as investors put a shovel in the ground within a year after the new rules take full legal effect. And for the record, the EPA counts 15 such “transitional sources” that might be in play; not 22.

But wait... they just said there were no new plants in the pipeline this regulation might affect.
* Where did the 7 extra plants go? The authors make it sound like this was just some sort of mass typo on the part of Think Progress, the Sierra Club, the NYT. Could it be that their prospective investors felt "constrained" be the new rule?

I can't imagine why. I mean, getting all the necessary permits and getting construction underway on a power plant is no big deal. Especially in the midst of a booming economy like this one.

* And of course, that applies for the other 15 as well.

* And... one has to ask in the first place, if the cost of natural gas is the binding constraint the authors make it out to be... why are 15-22 new coal plants currently "in the pipeline".

The article is sloppy, non-specific about a topic that requires specifics, and contains a lot of hand-waving ("removal of regulatory uncertainty" - with a certain regulation that prevents the creation of more electricity! will allow "the electricity market to be calmed"!).

Seriously, that doesn't trip your BS detector?

2. My point is that the same argument (politicians act differently with voter constraints) that makes Obama foolhardy to pursue this "now" makes him quite likely to pursue this in a month (if he's re-elected, the constraint is removed). The rational conclusion to your argument is to imagine what a re-elected and unconstrained Obama would do, not to pat him on the back and release him from a major constraints for because (in this one particular instance as opposed to several others) he didn't behave with complete disregard to popular sentiment.

Ken B writes:
My point--and the authors' point--is that they didn't use that power in a particularly harmful way.
If you mean harmful to Obama's re-election effort then yes. Otherwise, not so clear. It looks to me more like a war on coal with a block of voters carefully grandfathered in.
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