What Will Obama’s Greenhouse Gas Regulations Cost and Achieve?

By James D. Agresti
May 30, 2014

In an op-ed about the Obama administration’s pending regulation of greenhouse gases from coal-fired electricity plants, Paul Krugman recently declared in his New York Times column that:

• the international community will join together to curtail greenhouse gases if only the U.S. would do so.
• the regulatory costs of “saving the planet would be remarkably cheap.”
• solar energy will make these costs even lower.

All of these claims are at odds with the economic, scientific, and historical facts of these matters.

First, Krugman says that “other countries, China in particular,” will not negate U.S. greenhouse gas reductions by “burning ever more coal.” He claims that this outcome would be prohibited by “international agreement,” but “U.S. unwillingness to act has been the biggest obstacle to such an agreement.”

He then lays out this vision: “If we start taking serious steps against global warming, the stage will be set for Europe and Japan to follow suit, and for concerted pressure on the rest of the world as well.”

Krugman seems oblivious to the fact that there already was an international agreement to restrict greenhouse gas emissions. It was called the Kyoto Protocol—it was ratified by every major developed nation but the United States—and the events that ensued were very different than the scenario painted by Krugman. As documented in Just Facts’ research on global warming:

• “Between 1997 (the year Kyoto was adopted) and 2008 (the start of its compliance period), the combined annual CO2 emissions of the developed countries that ratified the treaty increased by 1.3%,” while those of “the U.S. decreased by 0.7%.”
• “In the decade following the adoption of the Kyoto Protocol, Earth’s atmospheric CO2 concentration increased by 5.3% or 19 parts per million, which is 35% more than the increase in the decade before the treaty.”
• “In 2011, Russia, Japan, and Canada announced they would not extend their participation in the Kyoto Protocol beyond 2012 because developing nations were exempted from its conditions.”
• “In 2010, the head of the head of the European Commission’s climate unit stated that the European Union’s participation in the Kyoto Protocol after 2012 will be based upon the participation of Russia and Japan.”

It is difficult to square these realities with Krugman’s prophecy of global climate change cooperation based on the U.S. cutting greenhouse gas emissions. The U.S. already did this, but the world did not follow, and the agreement fell apart due to the actions of other nations.

Krugman also argues that we can “achieve large reductions in greenhouse gas emissions at little cost to the economy.” He says, for example, that a study from the U.S. Chamber of Commerce shows that the total cost per household of Obama’s forthcoming coal regulation will be only $200 annually.

However, the Obama administration’s regulatory agenda on greenhouse gases is much more expansive than this single regulation. The administration has issued a far-reaching regulatory decision that a metric ton of CO2 has a “social cost” of $38. This is the figure used by the EPA and other agencies under the authority of the president to assess and justify regulations on greenhouse gases.

As explained by the U.S. Energy Information Administration (EIA), such regulations “can have the same consequences for energy prices, production, and consumption as the direct payment of a cash subsidy or the imposition of a tax.” According to this same federal agency, a CO2 tax of roughly the same magnitude as Obama’s regulatory decision will add 11% to the price of gas and 30% to the price of electricity by 2022.

These are recurring annual costs to American consumers, not a one-time fee.

Next, Krugman claims that the Chamber of Commerce’s analysis is pessimistic, because it assumes the replacement of coal with natural gas. According to Krugman, “dramatic technological progress taking place in renewables, especially solar power … should make cutting back on carbon even easier.”

That assertion is categorically false. Data from the Energy Information Administration show that solar-generated electricity will still be more than twice the cost of electricity from natural gas in 2018.

Though Krugman (and many others) are claiming that the world can cut greenhouse gases with minimal sacrifice, a 2011 report of the United Nations Framework Convention on Climate Change bluntly declares that “in the end ‘no regrets’ methods won’t be enough to stabilize or reduce worldwide greenhouse-gas levels—governments, businesses, and people are going to have to make difficult choices and take painful steps.”

These painful steps generally involve higher energy prices, which drain household budgets and harm the broader economy. Numerous creditable sources, such as the Institute for Plasma Physics in the Netherlands, the U.S. Department of Agriculture, the Congressional Budget Office, the Congressional Research Service, and the U.S. Government Accountability Office, have affirmed that higher energy costs drive up unemployment, drive down wages, and cause other harmful economic effects.

Furthermore, these effects tend to be harsher on poorer nations and people, because they spend a greater portion of their incomes on energy than wealthier individuals, and because high energy prices drive up the costs of food. Hence, despite the pronouncements of certain individuals, there are significant costs to cutting greenhouse gases, and these costs should be honestly weighed against any potential environmental benefits.