This week the Supreme Court halted implementation of EPA’s Clean Power Plan. Because the plan requires gradual emissions reductions using existing technologies, meeting the emissions targets is unlikely to be all that costly. The court’s action and the broader legal and political uncertainty will only increase the ultimate costs of the Clean Power Plan if it survives legal challenges.
Several technological innovations have caused carbon emissions to fall over the past 10 years after rising steadily for many years. First, advances in drilling and geological surveying techniques have made it more economical to extract natural gas found in shale formations. Replacing coal with natural gas has reduced emissions by at least 10 percent. Second, there have been remarkable advances in solar and wind power technologies. Solar electricity costs just 1 percent of what it did 40 years ago, and wind and solar are displacing both coal and natural gas for electricity generation. Collectively, these innovations represent inspiring examples of scientists and engineers steadily advancing the technological frontier. Combined with a range of federal, state, and local policies that promote renewables, these technologies are reducing emissions, regardless of a federal mandate.
If these technologies already exist, why can’t we immediately and cheaply transition to a much cleaner electricity sector? First, existing power plants have very long lives, and each year only a small fraction—typically below 5 percent—gets replaced because of age or other factors. Speeding up the turnover of the capital stock would mean the retirement of existing generators that have remaining useful lives. Second, installing new and cleaner generators, particularly wind and solar, often requires additional investments in the transmission grid. For a variety of regulatory and economic reasons, these investments take time.
The Clean Power Plan seeks to take advantage of past innovation and existing policies that are already reducing emissions. EPA has set emissions targets based on the increased use of these technologies, meaning that no further innovation is required. The emissions targets ensure that the existing technological trends will continue and provide a backstop against future emissions increases. Given many states’ existing commitments to promote renewables and energy efficiency, the cost of meeting the emissions targets for these states may be very low, if not zero. The Clean Power Plan will probably further reduce coal mining and consumption and cause some coal-fired plants to retire. But these things will happen because, for the first time, the climate damage caused by burning coal will be (partly) accounted for.
The Clean Power Plan is also mindful of the challenges of reducing emissions quickly. Starting in the early 2020s, states would reduce their emissions at a slower rate than has occurred in recent years. Analysis by my RFF colleagues, and that of many other economists, suggests that states can reduce emissions at low total cost.
The fact that the cost can be low does not mean that the cost will be low. States must develop plans to reduce their emissions, and the EPA must approve these plans. Market-based policies, like cap and trade, can keep costs low. States can realize the full advantages of these policies if they can coordinate their efforts. But it is not easy to create a cap-and-trade program or other market-based policy, and it is not easy to coordinate with other states. Many states will have to enact legislation as part of their plans, and they will face difficult choices about designing their programs.
Many states have generated considerable momentum in coordinating market-based policies. These states can prove the naysayers wrong by showing that they can greatly reduce carbon emissions without wrecking the economy. The delay caused by the stay slows down momentum and increases uncertainty about future policy, leaving states to scramble if EPA ultimately prevails in court. The legal and political uncertainty created by the court challenges and the upcoming presidential election present a major obstacle to states’ efforts to keep costs low.
