EIA Study Examines Climate Benefits and Costs of a U.S. Clean Energy Standard

By Adam Riedel, Associate Director

The U.S. Energy Information Administration has just published a new study, commissioned by Representative Ralph Hall (R-TX), Chairman of the Committee on Science, Space and Technology, examining the climate and financial impacts of pursuing a national “clean energy standard” (CES).[1]   Hall specified the structure of the hypothetical CES to be examined and asked the EIA to assume the following in its analysis:

  • Eligible CES resources include hydroelectric, wind, solar, geothermal, biomass power, municipal solid waste, landfill gas, nuclear, coal-fired plants with carbon-capture and sequestration, and natural gas-fired plants with either carbon capture and sequestration or utilizing combined cycle technology.
  • CES targets would start at 40% and then rise linearly to 80% by 2035 (the goal in President Obama’s proposal of January 2011)
  • “Credits” received for generating electricity from CES targets could be traded
  • Utilities would not be able to “bank” credits (i.e. hold credits in excess of the requirements in a single year for use in future years) or “borrow” credits from future years
  • All utilities would be covered by the CES requirements, regardless of ownership status and size.

The EIA ran nine variations of the above program, making different assumptions about the price trends of certain fuels and technologies over the time period in question.

Three findings from the study are particularly noteworthy.   First, under any CES scenario examined by the study, carbon emissions from the electric power sector are expected to drop 60 – 64% from the base case scenario (i.e., no CES in place) by 2035.  This is notable considering that the definition of CES eligible resources is quite expansive and includes some fossil fuel technologies.  Given that carbon emissions from the electric power sector in the U.S. are expected to increase very modestly between now and 2035, this represents a significant decrease from current levels of emissions from the largest GHG-emitting sector in the U.S.  Second, electricity expenditures are expected to increase between $115 and $279 (11 – 29%) per household per year by 2035.[2]  Third, the cumulative impact on the U.S. GDP between 2009 and 2035 under any of the examined scenarios is a quite modest 0.3% or less.

As is always the case with economic studies of this nature, there is considerable room for variance in the economic projections given the number of unknowns and corresponding assumptions that must be made to derive these numbers in the first instance (for example, a similar study by the Bipartisan Policy Center in June 2011 found that the change in electricity prices under a CES would likely range between a 7% decrease and a 9% increase by 2030.[3]).  Additionally, given several of the CES design parameters specified by Hall, this study is likely something of a worst case scenario analysis.  However, without dissecting the methodology of the study and accepting the numbers presented therein for the sake of argument, under the EIA’s projections the United States would be able to make a significant reduction in its GHG emissions for a cost of approximately $11 -23 per month, per household.  Additionally, despite the claims from some that a CES would have a terrible economic impact, the EIA study places the impact on GDP at a very modest 0.3% decrease or less.  However, upon receiving the EIA report, Chairman Hall claimed the report showed that a CES was nothing more than “an expensive new electricity tax on the American people” which is “obviously the wrong policy for America.”

[1] U.S. Energy Information Administration, Analysis of Impacts of a Clean Energy Standard, October 2011, available at https://www.eia.gov/analysis/requests/ces_hall/pdf/ces_hall.pdf.

[2] Most CES proposals include some kind of mechanism to lower these costs for low-income households.  Such mechanisms were not examined in the EIA study.

[3] Bipartisan Policy Center, The Administration’s Clean Energy Standard Proposal – An Initial Analysis, June 2011, available at https://www.bipartisanpolicy.org/sites/default/files/CES_paper_revised.pdf.