June 24, 2016

The McCarthy Hearing

Stephen Eule

Environmental Protection Agency (EPA) head Gina McCarthy appeared before the House Science Committee on Wednesday, June 22, and the EPA’s Clean Power Plan (CPP) was front and center in the minds of many committee members.

We released a new report, EPA Clean Power Plan: EIA’s Forecast Shows Benefits Fall Well Short of Costs. . . Again, revealing the economic and energy market impacts of CPP based on data from an impartial assessment of CPP in the Energy Information Administration’s (EIA) recently-released  Annual Energy Outlook 2016.

Apparently we’re not the only ones who noticed the difference between the story EPA has been peddling about the impacts CPP will have on the economy and what the EIA data show. Committee Chairman Lamar Smith asked the administrator some pointed questions about EIA’s analysis showing higher electricity costs, slower economic growth, and fewer jobs under CPP.

For her part, the administrator insisted she knew nothing about EIA’s most recent findings, and she stuck to her story that CPP would be good for the economy.

The most revealing and relevant part of the exchange happened here (at about the 1:22 mark), when a clearly frustrated Chairman Smith summarized EIA’s findings once more to get a reaction from the administrator. It went like this:

Chairman Smith: “Again, reduce economic growth, increase electricity costs, and cost 400,000 jobs over the next 15 years.”

Administrator McCarthy: “That’s exactly the opposite of what we believe will happen based on our independent analysis.”

Whoa! There’s an awful lot to unpack here.

Let’s start with the administrator’s claim—something she said twice during the hearing—that EPA’s CPP analysis was “independent.” The administrator would have us believe that a regulatory analysis conducted by, and using assumptions made by, the regulatory agency issuing the regulation being analyzed is “independent.”

Synonyms for the word “independent” include “impartial,” “neutral,” “objective,” “detached,” “unbiased,” . . . you get the idea. What can one say? Breathtaking.

Then there is the administrator’s claim that the result of EIA’s analysis are “exactly the opposite” of what EPA thinks will happen based on its own “independent [sic] analysis.” Is that true?

The Chairman pointed to the reduced economic growth EIA found the economy would suffer under CPP. Here’s what EPA’s Regulatory Impact Analysis (RIA) for the final rule has to say about the impacts of CPP on future GDP:               .

That’s right, EPA’s modeling analysis has no estimate of CPP’s impact on future economic growth. Zip. Zilch. Nada. How nothing constitutes “exactly the opposite” of what EIA found—a $529 billion hit from 2022 to 2030—one can only guess.

Then there’s the increase in cost of electricity EIA forecasts in its CPP scenario. What does EPA’s RIA have to say about retail electricity prices? See the table nearby. The numbers are drawn directly from RIA Tables 3-19, 3-20, and 3-21 and represent the average change in electricity prices caused by CPP.

As you can see, EPA’s own analysis says the average retail cost of electricity will go up (modestly) over the compliance period, not down. How EPA’s forecast of higher average costs of electricity under CPP constitutes “exactly the opposite” of what EIA found—higher average costs for electricity under CPP—one can only guess.



Finally, there’s Chairman Smith’s concern about the blow to employment under CPP. EIA forecasts that in 2030, the last compliance year, there will be 376,000 fewer jobs because of CPP. So what does EPA’s RIA have to say about employment? Does it predict big job gains? Well, the agency uses a lot of words to say it doesn’t really know what the overall impacts on employment will be.

The RIA does indicate lower employment in the three energy sectors it examined—electricity, coal, and natural gas—and it indicates higher employment in demand-side efficiency jobs. It warns, however, that the number of demand side efficiency-related job increases isn’t strictly comparable to the energy sector job losses because the figures for efficiency employment do not distinguish between full- and part-time jobs, so that’s no help. Neither is the fact that EPA provides no estimates of the employment effects of CPP in other sectors of the economy. None.

There’s a perfectly simple explanation. On a qualitative level, EPA concludes that “economic theory alone cannot predict the direction or magnitude of a regulation’s employment impact,” while on a quantitative level it concludes that “States have the responsibility and flexibility to implement plans that satisfy final emissions guidelines, while affected EGUs may choose their compliance strategies from requirements imposed by these plans. As such, given the wide range of approaches that may be used, quantifying the associated employment impacts is difficult.” Hmmm. Why is it EIA seems to be up to the task?

(By the way, it’s not as if no one’s asked EPA to do a rigorous analysis of the employment impacts of its rules. In fact, the law requires it, and the Chamber, among others, has long demanded such studies be carried out. In a few weeks, EPA will have to explain to a federal judge why it refuses to undertake legally-mandated employment analyses of its regulations.)

At the risk of repeating ourselves, how no estimate of overall employment impacts constitutes “exactly the opposite” of what EIA found—376,000 fewer jobs in 2030—one can only guess.

It’s no wonder EPA’s ignored what EIA found.