August 17, 2015

EPA’s New and Improved Future

Stephen Eule

Note:  As the Energy Institute's team of policy experts continue to analyze EPA's Clean Power Plan and other regulations, they are finding numerous inconsistencies and inaccurate assumptions.  We'll be shedding light on what we find through a series of blog posts we call "EPA's Fuzzy Math."  Today's blog post is the first installment. 


We’re constantly being told by the Environmental Protection Agency (EPA) that industry claims about the harm of its regulations are overblown.

Remember when EPA issued it final Mercury and Air Toxics Standard? The agency’s December 2011 Regulatory Impact Analysis said it would have a very small impact on coal fired-power plants, estimating a comically low loss of 4.7 Gigawatts (GW) of coal-fired generation capacity.

We know how that’s turned out. The Energy Information Administration’s (EIA) Annual Energy Outlook 2015 (AEO 2015) shows instead coal-fired capacity plunging almost 50 GW by 2016, an order of magnitude greater than what EPA estimated.

But that’s weak beer compared to what EPA now says is in store for coal plants. The Regulatory Impact Analysis accompanying EPA’s Clean Power Plan (CPP) Final Rule includes model runs showing the power sector impacts of the rule (both for the Rate-Based and a Mass-Based options) compared to a revised Base Case, which is a business-as-usual projection. Of particular interest here are the quite large differences between Base Case in the Proposed Rule and the Final Rule, especially as they relate to coal-fired generation capacity.

First, let’s take a look at the EIA data on coal-fired capacity. In May 2015, the most recent month of data available, EIA estimates coal-fired capacity at 291 GW. Its AEO 2015 predicts that by the end of in 2016, this will fall 22 GW to 269 GW.

So what does EPA’s revised Base Case predict? It expects coal-fired capacity to plummet an astonishing 78 GW. Put another way, EPA now believes that 27% of the coal fleet in existence three months ago will be history next year, and all without CPP. Talk about wishful thinking!

Ever helpful, EPA explains the carnage thusly: “These updates [to the Base Case] are primarily routine calibrations with the Energy Information Agency's (EIA) Annual Energy Outlook (AEO), including updating the electric demand forecast consistent with the AEO 2015 and an update to natural gas supply. Additional updates, based on the most up-to-date information and/or public comments received by the EPA . . .” Those must have been some persuasive comments, because what EPA produced bears little resemblance to AEO 2015. I wonder who was whispering in EPA’s ear?

We’ll have more to say on the implications of the revised Base Case and other issues in the weeks ahead. For now, the larger point is this: If you want to know how EPA increased the stringency of its Final Rule while also claiming that compliance costs would not increase, look no further than its bewildering revisions to the Base Case. Hey, if it states are going to bear these costs anyway, you can’t very well blame it on CPP. This is also presumably the magic math that is driving claims that many states are on track to meet EPA’s targets without lifting a finger.

The reality, of course, is that the states are on the hook not just for the additional emissions reductions the Final Rule imposes on the Base Case, they are on the hook for the emissions reductions in EPA’s Base Case, too. That means far higher costs and greater compliance challenges than what EPA would have states and other stakeholders believe.

As the saying goes, “Prediction is difficult, especially about the future.” So if EPA’s new and improved view of the future seems a bit too rosy, that’s because it probably is.