Does Clean Power Destroy the Economy?

Does Clean Power Destroy the Economy?
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While Pope Francis praises President Obama’s initiatives on climate change, Republican presidential candidates - led by Senator Marco Rubio - charge the administration’s Clean Power Plan will make utility rates unaffordable, lead to massive job reductions, and “destroy our economy,” but there is little evidence to support such dire predictions. Given the importance of reducing carbon emissions, the burden of proof should rest on these prophets of economic doom to demonstrate why, this time, they are right.

This is hardly the first time the electric industry has been buffeted by environmental regulation. The Clean Air Act of 1970 forced major changes in how fuels could be combusted. Later in the decade, the government required electric generators to wean themselves from oil. The Clean Air Act Amendments of 1990 required further adjustments to lower emissions. The Environmental Protection Agency, over the years, has ratcheted down allowable levels of various pollutants, as technologies and understanding of risks have improved.

With every environmental advance, critics have charged that new regulations would send prices skyrocketing and damage economic growth. But historical data suggests these alarms were greatly exaggerated.

Electricity prices did rise in the 1970s due to retooling needed to meet new environmental requirements, rising oil prices, overestimation of load growth, and higher interest rates. Eventually, the price for residential customers (when controlled for general inflation) retreated below levels when the Clean Air Act became law.

Despite what critics have called President Obama’s “war on coal,” the price of electricity (again, in real dollars) is currently running about the same as when he assumed office.

Past successes staving off prices spikes after new environmental regulations relied on the ingenuity of the industry itself. Decades of experience are replete with examples of companies claiming they couldn’t handle new regulations, then adroitly figuring out how to do so, and eventually bragging about the results (often without mentioning that the improvements were required by law).

Particularly after EPA’s alterations in the final rule, the recent Clean Power Plan allows a long time to phase in needed changes. The costs of alternative fuels like natural gas, solar, and wind have dropped dramatically. Many efficiency measures pay for themselves. The solar revolution, in particular, appears likely to continue, and the declining cost curve will help ease the transition to electricity less damaging to the atmosphere.

What about weakening the economy if prices do go up? Much of the current rhetoric sounds like a return to the 1970s, when price spikes did wreak havoc on the economy. But that was four decades ago.

In fact, since 1980, the amount of energy consumed per dollar of Gross Domestic Product has fallen by more than half. We still can’t be oblivious to the impacts of energy prices on the overall economy, but in the Information Age it would take a much greater increase in prices than in the past to damage the economy.

Moreover, if electricity prices did rise, consumers have the option of higher efficiency appliances that would keep their total bill from going up and could well reduce it.

The Clean Power Plan is a serious document requiring a serious debate. It is not beyond criticism. But, it is an important step toward addressing a problem that has been neglected for too long.

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