“The previous administration’s Clean Power Plan could cost up to $39 billion a year … according to NERA Economic Consulting.”
–White House fact sheet, March 28, 2017

President Trump has started rolling back Obama-era environmental protections, including directing federal regulators to rewrite federal rules to reduce carbon emissions.

The Clean Power Plan, a flagship environmental regulatory rule of the Obama administration, proposes to cut carbon emissions from existing power plants 30 percent below 2005 levels by 2030. It has been placed on hold while under litigation.

Proponents of the rule say it will improve public health and the United States would set an example for other countries to curb carbon emissions. Opponents say the plan will have minimal impact on the environment while driving up costs for consumers. The Fact Checker obviously takes no position on the rule.

A fact sheet about the March 28 executive order on Obama-era climate protections estimated the cost of the Clean Power Plan at up to $39 billion. How accurate is this estimate? Who exactly is NERA Economic Consulting? And why isn’t the White House using estimates by the Energy Information Administration (EIA) or the Environmental Protection Agency?

The Facts

Studies on the cost impact of the rule are built on different sets of assumptions, making it hard to make apples-to-apples comparisons. These studies compare how the energy industry and consumers would be affected in the absence of the new carbon emissions rule.

States have wide latitude in complying with the federal rule. Costs can vary depending on state, regional or local policymakers’ decisions. Emissions and power plants can cross state boundaries, so states can coordinate with each other to lower costs.

There are assumptions made about the types of actions states will take after the rule takes effect, and what role renewables and natural gas energy will play. That means there are a lot of unknowns in cost estimates. That’s an important caveat.

The NERA Economic Consulting’s November 2015 study that the White House cites is commissioned by the American Coalition for Clean Coal Electricity, which opposes the Clean Power Plan. The Fact Checker always warns readers to be skeptical of industry-funded research. The $39 billion is the high end of the $29 billion-to-$39 billion range of potential costs on the U.S. fossil-energy sector, under one method of compliance in the emissions rule.

Critics of the study say there are key assumptions that inflate costs.

It makes conservative baseline calculations about the impact of renewable energy policies, said David G. Victor, director of the Laboratory on International Law and Regulation at University of California-San Diego. Those policies would reduce the amount of emissions even before any costs of the Clean Power Plan are incurred. NERA Economic Consulting said that the cost of renewables do not actually have a major effect on its estimates of the rule’s costs.

The study relies on outdated cost figures for renewable energy and energy efficiency, according to the National Resources Defense Council, which is critical of this study. Its modeling is based on figures published by the EIA in its 2015 report, which “severely underestimates renewable growth and overestimates costs of new renewable generation,” according to the environmental group, which supports the Clean Power Plan.

The study also makes different assumptions about allocations of allowance costs for the electricity companies. This may have led to higher electricity price increases compared to the assumptions in other studies, including one by the EIA. However, EIA’s study is not an apples-to-apples comparison to the one by NERA Economic Consulting.

Clean energy advocates say the study ignores long-term benefits of energy efficiency programs, and that the rule could even lead to people saving money. The EPA and EIA fall somewhere in between those advocates and the study by NERA Economic Consulting; those agencies estimate that electricity prices would rise slightly at first but fall later, according to E&E News.

The EPA estimates that by 2030, the benefits of the rule ($34 billion to $54 billion) will outweigh the costs of complying with new regulations ($8 billion).

The White House did not respond to our request for comment.

The Pinocchio Test

The White House used a statistic by an industry-backed study to claim that the Clean Power Plan could cost “up to $39 billion a year.” While this wording indicates that it’s the highest end of the spectrum of costs, it creates a misleading impression that this is a definitive cost.

In reality, there are too many unknowns to cite a statistic like this with no context. The study the White House cites is based on a series of assumptions that are not comparable to ones made by the EIA, a credible government agency of career statisticians and researchers crunching data. We know the new White House isn’t a fan of government statistics produced under the previous administration, but eventually, the administration won’t be able to just rely on industry estimates and claims.

Two Pinocchios

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“The previous administration’s Clean Power Plan could cost up to $39 billion a year … according to NERA Economic Consulting.”
in a fact sheet
Tuesday, March 28, 2017