Streetwise Professor

August 3, 2015

Adding to Atlas’s Burden: The EPA’s CO2 Rule

Filed under: Climate Change,Commodities,Economics,Energy,Politics,Regulation — The Professor @ 6:41 pm

Acting under the aegis of its most malign agency, the EPA, in its unbending effort to hamstring the US economy, the Obama administration today released its long dreaded CO2 rule. The Rule mandates a 32 percent decrease in CO2 emissions by 2030. This outcome will be achieved by a dramatic reduction in the use of coal powered generation, and its replacement by renewables.

The administration touts its generosity by pointing out that compliance with the Rule has been extended by 2 years.

Great. We get screwed in 7 years, instead of just 5. Gee. Thanks. How thoughtful. You really shouldn’t have.

The Rule is tarted up with a cost-benefit analysis which purports to show massive benefits and modest costs. The benefit is in the form of improved health, in particular through the reduction in respiratory ailments.

But every step of this analysis is literally incredible. Consider the steps. First is an estimate of how the regulation affects climate. The second is an estimate of how climate affects health. The third is an estimate of the value of these health benefits. None of these calculations is remotely plausible, or even is it plausible that they can be made realistically, given the incredible complexity of climate and health.

And note the bait and switch here. The Rule is touted as a solution to the Phenomenon Once Known As Global Warming. But the Rule itself admits that the effect on temperature will be point zero one eight degrees centigrade by 2100. This is effectively zero, meaning that the “Climate Change” benefit of the Rule is zero.

The health benefits come from reductions in particulates from coal generating plants. So why not regulate particulates specifically?

This all points out that cost benefit analysis for large federal rules is basically Kabuki theater. Some laws require this analysis, but since courts give so much deference (under Chevron) to agencies, that this analysis is not subject to any serious scrutiny. Consequently, the process is ritual, not a serious check on agency discretion.

The Rule is grotesquely inefficient even if you believe this Making Shit Up And Calling it Science!® “cost-benefit analysis.” An efficient rule would achieve its results at lowest cost. But the command-and-control EPA rule does not do this.

Originally, the Rule was expected to lead to a substitution of natural gas for coal. But we can’t have that, can we, given that natural gas is a fossil fuel (even if Nancy Pelosi doesn’t think so)? So the current rule encourages the use of renewables.

The economics of renewables (especially wind) are atrocious. They are intermittent and diffuse. Intermittency strains reliability, and requires maintaining backup generation. Germany (and other countries, including Spain) have gone all in on renewables, and it has been a disaster. Energiewende has saddled Germany with high costs and lower quality power that has imposed great costs on German manufacturing. (Fluctuations in wind and sunlight induce fluctuations in frequency that wreak havoc with precision manufacturing processes.) California is already on the verge of reliability problems when the sun sets during winter months due to a sudden drop in solar generation (aka the swan problem) that requires a sudden ramp up of conventional generation: but the supply of solar during daylight hours undermines the economics of conventional generation. Wind power in Texas is leading to frequent bouts of negative prices which reduce the profitability of conventional generation necessary to maintain reliability.

The Rule acknowledges reliability issues, but the response is totally inadequate:

[T]he rule requires states to address reliability in their state plans. The final rule also provides a “reliability safety valve” to address any reliability challenges that arise on a case-by-case basis.

That’s just great. EPA says: “Yeah, we know renewables create reliability issues. Not our problem! You figure it out, states.” Note that this is problematic because the electrical grid is interconnected, meaning that retiring a coal plant in one state can have serious effects on reliability in numerous other states. So how do individual state plans efficiently address these inherently interstate issues? And as for the “safety valve”, the case-by-case analysis is likely to be cumbersome and costly.

Let’s get down to cases. By its own calculations, the proposed Rule will have a risible effect on global temperature. Therefore, there is no cost benefit justification for the control of CO2 per se, the ostensible purpose of the rule. If there are substantial benefits from reducing particulate emissions, then tax these emissions at a rate commensurate with these costs and let utilities and others find the most economical way of complying.

But that’s not the point, is it? Obama and the EPA don’t want efficiency. They have an intense ideological animus against fossil fuels, and a romantic attachment to renewables: many of the Democrats’ largest donors are have a strong investment in renewables. Pigouvian approaches would likely result in the failure to litter the landscape with bird blending windmills and massive solar panels, so they prefer command and control approaches instead.

And did I mention that Obama insinuated that if you oppose the Rule you are racist?

This new Rule is a piece with the last 6 plus years of grotesquely inefficient legislation and regulations. Frankendodd. Obamacare. Net Neutrality. Each of these add huge amounts of new weight that the Atlas of the American economy must bear. An economy subjected to such burdens will survive, but it will not thrive. The EPA’s new Rule will provide no meaningful benefit, and any benefits that it does generate will be gained at excessive cost. But that is the Obama way. That is the leftist way.


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  1. If that is any consolation, this is far, and I mean far, from the worst cases out there. Just take a look at this:

    “Reduced gas royalty tax to increase investment, stimulate domestic production and improve Ukraine’s energy security”

    You would never ever guess from this upbeat headline that it is the very same government who raised the very same tax to 70% (“because they have the money and we need the money”) just 4 months prior to that, effectively strangling the domestic industry and guaranteeing some handsome extra income for the Russian aggressors.

    From the country with a reasonable output of SWPs, Ukraine had to find someone who has no clue about economics and appoint her finance minister. Talk about hamstringing the economy.

    Comment by Ivan — August 4, 2015 @ 4:27 am

  2. Michael Crichton famously compared this kind of analysis to the Drake Equation for the possibility of intelligent life on other planets. Essentially it’s (number of stars) x (fraction with with planetary systems) x (fraction of planetary systems in the Goldilocks zone) x (fraction of Goldilocks planets with an atmosphere) x etc x etc = number of planets with smart aliens.

    Crichton observed that while the equation was in itself valid, not a single one of its terms could be accurately stated. Therefore to believe in the existence of aliens was a religious act.

    He showed how Carl Sagan’s nuclear winter hypothesis was another Drake equation, and global warming alarmism was simply based on yet another.

    Six obviously unknowable terms in any estimate of future CO2 harm are

    – chief source of energy over the next 100 years
    – price of that energy
    – quantity consumed
    – emissions from that energy source
    – human population over the next 100 years
    – major technology advances (eg did anyone predict the internet in 1915?) over the next 100 years that mitigate energy use.

    As far as I know, the first three above are considered an inexact science over periods of a few months and the second is not even an intellectually resepctable pursuit, so God knows where the IPCC gets its confidence from. Yet you’d need to know at least those to even begin to estimate cost/benefit.

    It’s a post-religious-age religion, like Marxism, for people who think they’re too smart to believe in religion.

    Comment by Green as Grass — August 4, 2015 @ 9:19 am

  3. Renewables are more accurately called Unreliables.
    The only practical way to get fossil fuels out of electricity generation is nuclear fission.
    But Obummer,being of the brain dead trendy persuasion,can’t say that.

    Comment by Podargus — August 4, 2015 @ 3:15 pm

  4. @Green-Exactly right. And your list could be expanded to include the sensitivity of temperature and other relevant climate variables (e.g., rainfall, frequency and intensity of storms, hurricanes, etc.) to CO2, how these variables affect humans (which depends in part on the ability to adjust on myriad technologically dynamic margins to mitigate impact), the appropriate discount rate, and on and on and on.

    Even the particulate-related calculations are a cocatenation of unknown and unknowable parameters.

    It is a religion, with the most expensive rituals ever conceived.

    The ProfessorComment by The Professor — August 4, 2015 @ 5:37 pm

  5. @Podargus-The plan’s boosters are claiming it favors nuclear projects. I’ll believe it when I see it.

    True story. Back in March 1979 I was thinking of leaving the Naval Academy. My dad tried to persuade me to stay in and become a nuke power officer and then go into civilian nuclear engineering. Then Three Mile Island happened. I told him civilian nuclear is dead. He didn’t agree, but I left the Academy. And am I glad I did. My prognostication was better than Dad’s.

    Re unreliability, I laugh when people tout the improvements in solar and wind efficiency. They totally ignore the costs of dealing with unreliability, and how these costs per MWh increase with the fraction of generation that comes from renewables.

    The only renewable that improves reliability is hydro, and greenies hate that too.

    The ProfessorComment by The Professor — August 4, 2015 @ 5:43 pm

  6. The only sustainable fuel found so far is fossil, interestingly. Everything either uses more energy than it yields, or yields too little to be useful, or flat out doesn’t work.

    I genuinely struggle to identify any natural resource that we have ever literally and conclusively run out of*. There is Sheikh Yamani’s famous dictum of course, but in an advanced economy, anything natural that gets scarce – rubber, hardwood, whatever – will rise in price to the point where we either use less, recycle more, find more, or synthesise a substitute.

    * Dodos don’t count, because while we have run out of dodos, we have not run out of food.

    Comment by Green as Grass — August 5, 2015 @ 8:49 am

  7. @Green-Unfortunately we haven’t hit Peak Idiot. Nowhere close.

    The ProfessorComment by The Professor — August 5, 2015 @ 1:40 pm

  8. @Green-The history of peakism is a litany of intellectual error and failure. Not even good economists are immune. The most notably example is Stanley Jevons, who wrote “The Coal Question; An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines.” Then there the bad economists and non-economists like the Club of Rome and Paul Erlich. But no matter how many times these predictions turn out to be utterly wrong, there is no end of Resource Jeremiahs preaching that the end of this resource or that is nigh.

    Re fossil fuels. They are dense, non-intermittent, storable, and cheaply transportable. Renewables are none of the above.

    The ProfessorComment by The Professor — August 5, 2015 @ 1:45 pm

  9. […] and more people not to work through transfer payments, which consume 63% of the federal budget.  The US regulatory overlords continue to grow.  US GDP continues to sputter.  Keeping rates at 0% isn’t going to change […]

    Pingback by Competitive Devaluation; Not the Way To Run an Economy Points and Figures — August 11, 2015 @ 5:48 am

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